I don’t even know what to say about the massacre in the mining indices. It is so utterly stupid and illogical that I really have no way of even attempting to come up with some sort of rational explanation for it. To see 6 or 7 days’ worth of gains to be wiped out in one session in a sector that has been one of the few bright spots in the entirety of the equity universe really has no rational explanation. Let others who are more imaginative than I come up with something. My own view is that those who are stupid enough to throw away quality mining shares in the face of the greatest financial collapse ever seen on the planet deserve what they get. Those who are buying the shares are in effect buying gold in the ground. To throw away the shares means that 1.) you either believe that the miners are not going to show any profits or 2.) gold is going to collapse or 3.) both of the above.

The rally in gold, while it has come a long way, is not, and I repeat this, is not the result of hot money chasing gains. It is rather the result of investors seeking a shelter from the coming financial tsunami. How do I know that? Easy – just look at the low open interest readings. It is 60% of what is was the last time gold rallied over $1,000. What you are seeing today in gold is the exit of that portion of the gold market comprised of the short-term oriented trading crowd. That crowd does not give a rat’s arse what the fundamentals are; they are purely technical traders whose long term horizon is a 60 minute bar chart. Once upward momentum stalls out, they sell. Opportunistic short sellers, of which there are plenty at the Comex, understand this phenomenon quite well and use it to their advantage. I would look for gold to stabilize soon and then move sideways for a brief period before resuming its uptrend. The conditions that have led to the sustained gold buying are not going anywhere and as it drops into support regions on the price chart, buyers will emerge and begin increasing their long side exposure.

Then again the Obama will tell us all this evening that he intends to cut the federal budget deficit in half. Maybe that is why the bond market is rising. They are too giddy laughing in scorn to realize that they inadvertently hit the “buy” button and not the “sell” button.

Try to shrug off this day as a wasted trading session in which the inmates escaped and took over for a brief period. Traders have to go with the flow, as idiotic as it may be on some days, but longer term oriented holders of gold, and particularly those who have yet to purchase any of the physical metal should welcome such days and rapidly avail yourselves of these opportunities to acquire the metal at a bit of a price break. Two years from now, these prices will look like bargains…

The last thing I would leave you with today as your watch the fools throwing away gold is the following article that came down the Dow Jones wire feed this morning. I have included the entire article because it is that important. Read this and then tell me that you want to throw away anything gold, or for that matter, silver related. Let the damn fool funds and day traders do their thing. Many of them are not going to be trading a year from now anyway…they will be busted and gone, more road kill on the floor of the commodity exchanges.

DJ Gold, Silver Dealers Report Strongest-Ever Coin, Bar Demand
Tue Feb 24 12:10:27 2009 EST
By Allen Sykora
Of DOW JONES NEWSWIRES

Veteran U.S. bullion dealers say the demand for gold and silver coins and investment bars so far during 2009 is perhaps the strongest they have ever seen.

Investors are snapping up physical metal amid ongoing worries about other financial investments, the health of the global banking system and fears about inflation down the road due to fiscal-stimulus efforts.

Buying gold in times of economic uncertainty isn’t new, but bullion dealers have noticed some differences in this investment surge. Dealers have reported growing institutional demand, rather than demand from just small retail investors, and a lack of backdated coins that historically could be bought at lower prices.

Bullion dealers said supply continues to be tight, although conditions have improved somewhat from 2008 when many of the mints around the world at times had to suspend sales due to a lack of blanks.

"We’re having some of our strongest months ever," said Scott Thomas, president and chief executive of American Precious Metals Exchange in Edmond, Okla. "The bottom line is our numbers are probably double what they were last year, and last year was very busy. The demand is incredible. And even the strong prices for metals are not slowing it down."

Most-active April gold futures on the Comex division of the New York Mercantile Exchange on Friday hit the $1,000-an-ounce level for the first time since July.

Through Sunday, Thomas said, his company had made nearly 10,000 trades so far in February, compared to 4,379 in the same year-ago period.

Officials at New Orleans-based Blanchard & Co. said the dollar value of their sales during the first 1 1/2 months of 2009 was more than all 12 months of 2007. This occurred as more investors read that gold and Treasury securities were about the only assets that survived the market "carnage" last year, said Donald W. Doyle Jr., chairman and CEO of Blanchard.

"People are moving out of stocks and bonds and CDs [certificates of deposit] in a large fashion," said George Cooper, senior account executive with Denver-based Centennial Precious Metals, who often works 12-hour days and describes business lately as "gangbusters." Many of the calls are from investors who lament losing half of their life savings to the tumble in stocks, he said.

James Cook, president of Investment Rarities in Minneapolis, said last week may have been the busiest for retail sales since he started his company in 1973.

"When they [Obama administration officials] came out with the new bailout plan, people were alarmed at what could happen to the purchasing power of the dollar," Cook said.

His company’s sales are roughly 75% silver and 25% gold. Physical sales of bars and coins last week totaled $5 million.

"Silver Eagles are still rationed," Cook said of the silver bullion coins available from the U.S. Mint. "We get 20,000 a week and they fly out the door. We can get 10,000 Silver Eagles on a Monday and basically they’re gone in 15 minutes. I have 55 guys on the phone calling out."

The industry veteran said the current demand has been more consistent and probably exceeds that from the bull run that carried silver to its all-time high above $50 an ounce in 1980 while also lifting gold to a then-record high that stood for 28 years.

Andrew Schectman, owner of Miles Franklin, based in Wayzata, Minn., described recent demand as "parabolically stronger" than in the past.

As an example of the interest in gold, he reported that a recent presentation he gave at the World Money Show in Orlando drew an audience of some 700 people, with more turned away due to a lack of space. By contrast, the audience at the same program a year ago was 75, he said.

Institutions, High-Net-Worth Investors Seek Coins, Bars

Several dealers said much of the current demand is coming from large investors and even institutional clients.

Most of Blanchard’s customers in years past were individual retail investors, Doyle said.

"More and more now, we’re finding we not only have individual investors but institutional buyers," he said. "That is a significant change even just in the past year or so."

And, Doyle added, institutional clients are buying in "significant quantities."

Cooper said more high-net-worth individual investors also are looking for coins and bars.

"Last year, it was the little guys, people with $10,000 to $20,000, up to $100,000," he said. "Now, we’re getting calls for $100,000, $500,000 to $1 million."

Yet another noticeable change is the absence of less-expensive backdated coins from past years, said Schectman, who has been in the business for 19 years.

During the last 15 years, if a client called wanting to place a large order for coins from any of the major mints around the world, Schectman would try to get coins from a past year. That’s because "an ounce [of gold] is an ounce is an ounce; it doesn’t matter," Schectman said. However, by purchasing an older coin, the investor could avoid a premium for a new-year coin caused by factors such as demand from collectors.

"What is unique about this time is that, since last year, roughly June, all of the backdated coins are gone," he said.

Thus, with no backdated coins, he anticipates there will be further back orders and delays from the world’s major mints.

"The secondary market for so many years made the industry, with people like yourself buying gold, holding it a few years and selling it back," Schectman said. "Nobody is selling. In $92 million of business done last year, if $5 million were related to buybacks, I would be shocked.

"If you are a small coin shop relying on the secondary market to give you supply, you’re going out of business."

In fact, with so many large orders from high-net-worth investors and the lack of metal on the secondary market, the "average person trying to buy gold and silver is going to have a very, very challenging time," Schectman said.

-By Allen Sykora, Dow Jones Newswires; 541-318-8765;
allen.sykora@dowjones.com