DAN NORCINI'S COMMENTS ON DECEMBER 23, 2008

FROM JSMINESET.COM Hourly Action In Gold From Trader Dan Posted: Dec 23 2008 By: Dan Norcini Post Edited: December 23, 2008 at 4:13 pm Dear CIGAs, We had gold prices going one way today and mining shares going the other way once again in a repeat performance of yesterday’s play only this time it was the mining shares going up while the gold itself was going down (or should I say the paper gold). Considering the weakness in the broader equity markets, the mining shares performance at this point looks pretty impressive especially given the fact that Comex gold was knocked down quite a bit today. Trading was lackluster today at the Comex as was expected with reports from the pit stating that traders were sitting around working crossword puzzles. Holiday trade is here without a doubt as volume was so anemic yesterday that I had to do a double take when I first saw the numbers thinking that it might have been a reporting error by the wire service! The next thing you know we will be getting reports from the pit telling us that traders are betting on cockroach races. That is why you cannot read too much into price action this time of year – there simply is not enough liquidity to get a real price discovery mechanism in place. Most of the trade consists of pit locals just shoving prices around in the path of least resistance hoping to pick off a few stops or to scalp a few ticks out of the market to buy their kids that GI Joe with the Kung Fu grip. Air space both above the below the market is the current weather forecast. Technically gold is chopping in a range. Another way of saying this is that it is consolidating and marking time. The top of the range is near the $850 level while the bottom is near $830. A point of interest – the spread between the December gold contract and the April gold contract is a mere $2.00 which is pretty tight. It is only a bit over a $1.00 between the Dec and the February. If anything changes further in this regard I will let us know but for now the tightening is quite interesting. I think that the spreads will actually tell us more about gold this time of year than the outright price action in the lead month to be honest. Bonds floated higher today but remain below their recent peak. It is when the deflationary mindset eventually gives way that the bonds will break with a vengeance. When that occurs is anyone’s guess but it most certainly will. The Central Banks dread deflation more than anything else and will do everything in their power to slay that dragon no matter what the longer term consequences might be. Count me out of the group that believe that the mortals manning the helm at the Fed will be able to withdraw all the liquidity that they are injecting into the system to prevent a huge surge in inflation in the future and a loss of confidence in the Dollar. On the delivery front, another 59 contracts were assigned in the December gold contract bringing the total for this month to 13,325 or 1.33 million ounces. There are only 413 contracts left open in the December so internet chatter about a short squeeze in that month have been proven to be unfounded. Bear in mind that we have never advocated, “busting the Comex” at this website. We have advocated serious gold buyers who are looking to obtain the metal to go to the Comex and take delivery so as to reduce the amount of registered gold available and level the playing field by making this market an honest one. Those who insist on playing the paper game with the bullion banks will never win unless they force the shorts to respect the fact that they might be required to make good on deliveries. That is the only way to prevent these parasites from preying on the unsuspecting dupes that actually believe the Comex is a freely traded market. Like I have said many times, the hedge funds are not known for original thinking, being unable to wean themselves from their computer algorithms like the mindless droids that they are. If they spent a mere fraction of the money that they use in purchasing long positions at the Comex and actually rode enough of those longs into delivery, they could give the shorts a trip to the woodshed that they would never forget. The question is do they have the savvy to do so and the will to actually stop relying on their black boxes to do their thinking for them. I seriously doubt it but perhaps I might be surprised. At this point it does look to me like the index fund redemptions and most of the hedge fund deleveraging trade has finished up with only pockets of that sort of selling remaining. We will have to see what they do with the advent of the new year. Obviously the fate of the Dollar will be the determining factor in nearly all of the commodity markets moving forward into 2009. The grains should be quite interesting as the low prices have many farmers in the position of having gone from what could be considered boom times to almost bust times in the matter of 4 months. That being said, it still looks to me like they have bottomed out which bodes well for the entire commodity sector. So far the verbal intervention by the Japanese monetary authorities last week seems to have succeeded in shoving the year away from its lofty levels. It will be interesting to see how the yen fares early next year. I should note here that if the yen were to rally back up to its recent highs, especially next week, with liquidity being so low, the monetary authorities could inflict all kinds of damage on it should they choose to do so. The particularly could get a lot more effect from any actual intervention when the volume is so low. Crude oil basis February broke below the $40 level yesterday paving the way for a move down to $35 or even $30. Keep in mind that many projects that were originally profitable when crude was trading above $75 - $80 are no longer so and those projects will never see the light of day at current levels. Oil companies are not going to punch holes in the ground to bring out oil and lose money on it. They will simply idle the drillers. The old adage that the best cure for low prices is low prices will hold true for crude oil. Eventually the excess supply will get mopped up and crude prices will recover.