Dear CIGAs,

In what is a continuation of yesterday’s deflationary trade, the US Dollar moved sharply higher today with crude oil getting whacked along with most of the rest of the commodity complex, including ol’ Dr. Copper. That allowed for further long liquidation in gold which as those of you who follow this site regularly understand, always tends to occur during rollover week as funds move positions out of the front month to avoid delivery issues. The perma bears generally tend to time their gold takedowns in association with these rollovers – no surprise there.

Open interest readings reveal sizeable long liquidation occurred in yesterday’s sharp plunge lower in gold. The recent Commitment of Traders report has shown the momentum following trading funds with a rather large net long position which caught the attention of the predatory bullion banks who dug in their heels above $958, sucked up all the bids and then rammed the market lower after which they stepped aside and let the computerized black boxes of the funds do their work for them as they are now covering those shorts put on above $955.

The only way to short circuit this rather simpleminded strategy of the bullion banks is for some of the big funds to simply stand for delivery and insist on taking the gold out of the warehouse but no matter how often we lay out a clear strategy for victory over the Comex gold goons, the hedgies simply cannot bring themselves to taking the necessary steps to prevent their own plundering at the hands of the bullion banks.

Open interest is shifting to the December contract which is now 4 times that of the August.

With the short term technicals having now turned in favor of the gold bears, the market will need to find support near the next level of $920. Failure there and it is back down below $910. Resistance is now $940 on the topside.

It appears that the fundamentals of large supplies in inventory are taking crude lower and when coupled with the stronger US Dollar, is resulting in a buyer’s strike across the entire commodity complex. That has taken the CCI (Continuous Commodity Index) down near its 50 week moving average on the price charts which is also quite close to the 50% Fibonacci retracement level from last December’s low to this June’s high. One has to think that if the inflation argument is winning, the commodity complex will find buying support rather soon. If not, we could drift down to near 380 on that index which I suspect will see a large amount of index fund money making its way back into these markets.

Once again the bond market is trading in an extremely erratic fashion. Early in the session it was the recipient of safe haven flows on the heels of the lousy durable goods number and the weaker stock indices. Additionally, the Fed was in there buying $3 billion worth of bonds as part of their Quantitative Easing program. As soon as that buying was over, the bonds began drifiting well off their highs and were stabilizing there until the results of the $39 billion auction of 5 years became known. They then took a sharp dive as poor demand at the auction raised fears about the massive amount of supply that is coming at the market. Pity the unfortunate mortgage outfit attempting to get a read on this screwed up market so that they can set up some sort of hedging program!

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini