Gold Stuck in the Mud

I wanted to see how gold would settle today before commenting further. As stated in my earlier post, now that the big FOMC non-news event is out of the way, the market is selling the fact. If this is the best that gold can do, it is difficult for me to see what it is going to take to drive it up through resistance. It just hearkens back to the US Dollar as far as I am concerned. If that weakens, gold moves higher; if it strengthens, gold moves lower.

I can say this however, it is not helping the cause of gold to see crude oil going lower. That market has been a very reliable harbinger of shifts in trading sentiments in regards to inflation or the lack thereof. Swelling stocks of the black goo are indicating just how sluggish any "growth" is for the US economy. How inflationary pressures can be anticipated with energy costs moving lower, grains generally weaker and wages stagnant remains a mystery to me.

Now that the US Dollar has held at chart support, I would expect gold to weaken until the Dollar meets some overhead resistance. Could that happen as soon as tomorrow? Sure it could. You name it; just about anything can occur in these convoluted markets anymore.

All that this means is that we need to take each trading day as they come and try not to read too much into any one day's price action. If you get some follow  through from one day to the next, be pleasantly surprised and grateful for any sort of "good behavior" in the market because chances are it will be fleeting.

Here is the thing which continues to stand out for me. The speculative crowd continues to dishoard gold. As long as the reported gold holdings continue to plummet in the biggest gold ETF, GLD, I cannot be bullish towards gold. That does not mean I am necessarily wildly bearish; it simply means that a primary catalyst for a SUSTAINED MOVE HIGHER is not there. It leaves me more neutral until I see something which gives me reason to have a strong conviction in regards to short term price direction.

Here is the chart:

 

By the way, the CFTC is slowly updating the data for the Commitment of Traders data which was impacted by the recent government partial shutdown. It confirms the same thing that the above chart is showing, too wit, that speculators have recently been flirting more and more with playing gold from the short side. They are still net long but are adding more shorts than longs as well as liquidating some existing longs. This tells me that specs are still looking at rallies as opportunities to short the metal.

 

As of October 15, there was a one week shift of a whopping 22,000 contracts reduction in the net long exposure of the gigantic hedge funds. That reporting week period saw them adding 20,000 brand new shorts! That is absolutely astonishing.

 

I have gone back to look at the week in which gold dropped below $1200 in June of this year by way of comparison to see what they did in regards to their shorts. Guess what - this most recent week of data provided by the CFTC shows that the number of fresh short positions added by these hedge funds through October 15 has DWARFED the increase in hedge fund short positions added in a single week even when gold was imploding lower back in June of this year. These large powerful specs are selling gold with a vengeance, at least through Tuesday, October 15th!

 

That is why we get such fierce upmoves when gold rallies of late - it is this hedge fund short covering which is behind that.

 

Also, just some additional FYI stuff - the small spec crowd was selling gold heavily during that week of October 15th as well.

 

We should have the October 22 data before the end of the week and then we will have this Tuesday's (October 29) data very soon so that will bring us up to speed and back to normal.

 

I will say this however - that report of the week of October 15th is a real eye-opener! If the behavior of the hedge fund crowd back then is any indication of what they are doing this week, it is going to be very difficult for gold to rally.

 

That is why I keep saying that it needs a strong catalyst of some sort. Hedgies are selling and until that changes, it is going to take a grossly weaker Dollar to break it up and out past overhead chart resistance.

 

I would also like to make mention of the fact that I have been keeping an eye on the gold delivery process for the month of October. JP Morgan's HOUSE ACCOUNT has been a very big stopper again this month. They are buying and taking delivery.

 

That leads me to something that I need to say in order to deal with what I consider to be erroneous conclusions by some in the gold camp about a new buzz word - FLASH CRASH. (When it comes to gold it seems we are always dealing with the latest thing does it not? First is was Gold Forward Lease Rates, then BACKWARDATION, then this, then that and now it is apparently FLASH CRASHes which are all the rage.

 

Let's just state for the record, Morgan is buying gold and taking delivery. The COT report shows the Producer/User/Merchant category near their SMALLEST NET SHORT position in YEARS. Hedge Funds are adding shorts at a furious pace. Gold holdings in the ETF, GLD, are dropping like flies. So why in the world does the "gold cartel" need to waste time and effort supposedly dropping large sell orders on gold during the thin Asian trading session in an attempt to discredit it?

 

Answer - they don't. Specs are already using rallies to sell the metal.

 

I will say it again - the gold cartel does not attack gold when it is in a bearish trend which it currently is. They attack it when it is in a rising, bullish trend as they seek to slow its rise. During such times, the hedge funds are doing the buying and the bullion banks are doing the selling. Right now, the bullion banks are using selloffs to buy. Morgan is not taking long positions for its house accounts for no reason - they are taking delivery of the metal. How in the hell can they be the ones causing the FLASH CRASH if they are long and are standing for delivery?

 

Anyone who trades futures for a living as I do and has to sit here each and every night and watch the various markets like corn, soybeans, wheat, cattle, and hogs for example, undergo the various machinations that these damned hedge funds or large players inflict on them during the Asian session when there is so little liquidity,  knows from first hand experience how convoluted the price action can become at times. Large orders for that time of the evening, knock price around and drive it in the direction favored by those who have positions in place. Their plan is to take in into stops, either above or below the market and then set off a chain of buy or sells which they can use to profit from. It is all perfectly legal but in my opinion, completely unethical and disgusting. Yet, the exchanges seem more than willing to tolerate this sort of crap as long as they can collect the trade fees.

 

My beef is with the exchanges more so than those who commit this sort of legalized theft. It is all just chalked up to the "price discovery" process and tolerated. The best cure for this happens to be a big player on the other side who one day just eats their lunch and gives them a lesson that they will never forget.

 

For now however, let's forget about the idea of sellers trying to sell futures and maximize their selling price - those selling into thin market conditions are attempting to influence price by moving it in the direction they favor - Right now those are hedge funds or some other large players, not bullion banks. The only way this will stop is for another large player to stuff them. For that to occur, we need to see a shift in sentiment in regards to gold where another category of specs are eager buyers or any price weakness. So far we are not seeing that.

 

Remember, it is MOMENTUM BUYERS which drive our markets nowadays so before that crowd will enter in size, gold will need to clear the various chart hurtles that are necessary to get their attention and more importantly, the attention of their computers.

 

 

 

I leave you with this chart of Gold.... notice where it has run out of steam to the upside. It will have to clear this band of overhead resistance to run out some more shorts and to entice more new longs from the momentum crowd. The indicator is rolling over meaning that bulls need to step up quickly to avoid a setback lower in price.

 

A push past this week's high will be a big deal if it happens as it will allow price to test $1380 and perhaps as high as $1395 or so. If it fails to extend, support comes in first new $1340 - $1335, (It is near there as I type this) and then again down near $1320.

 

If the US Dollar index can clear 80, gold will drop to test $1320 in my view. If the Dollar fades and the Euro in particular can recapture 1.38, we should see gold strengthen. We are back to watching the gyrations in the Forex markets once again it would appear.