Is Gold deleveraging over? Comex Gold about to rally?

Trader Dan at Jim Sinclair's Mineset (21 Nov 2008 - JSMineset - Trader Dan Comments On The Ongoing Comex Liquidation) gave a great summary of the effect of deleveraging in paper gold market.

He wrote " ... more than 50% of the players who moved towards gold over the last 2 ½ years are gone from the market. ... the shorts were more eager to get out than the longs were which is really saying something when we consider just how much hedge fund deleveraging and index fund redemption related selling has been occurring. When you have reports of unprecedented demand for gold bullion, shortages in the spot market, mints closing down sales, etc., as a short in the paper market, you simply no longer have any ammunition with which to bolster your side of the argument. You realize that you are flirting with the devil since the only thing you have going for you is long liquidation and that in and of itself cannot last indefinitely as even a paper market must eventually align itself with the real fundamental world.

What is important to note now is that gold has tripped several technical indicators into a “buy” mode and has also taken out several very important technical resistance levels. Things of such nature generally bring in technical based buying and with open interest so low and so many players having pulled out to sit on the sidelines, there is the potential for quite a bit of buying to come into the Comex should these folks decide to play that game again. I am most anxious to see the open interest numbers from today’s session that we will get Monday morning to see what might have transpired today. I do hope that we have seen an end to the drop off in open interest in gold as it is simply not possible to sustain any rallies for long without more new buying coming into the market. Maybe, just maybe, we have reached that point where the dreadful liquidation is over..."

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