I must say, and I do not like saying it, but that if this is all that gold can do, after a week in which it crashed through a critical level of chart support, then this market is headed for more trouble next week. I hope I am wrong about this but with the gold shares once again seeing even more selling with the HUI losing chart support at the 210 level, it does not look good for the yellow metal.
Adding to this bleak outlook, is this week's Commitment of Traders report which confirms the trend of large speculator selling of gold. Another week and another repeat of what we have been seeing since the end of October, namely, long liquidation by hedge funds as well as the institution of new short positions by this same category of traders.
Here is a partial chart showing the activity of the hedge funds since the month of June during which gold hit that spike low down near 1180. Can you see what took place? Once the market spiked down to that level, value-based buying of large size took place which drove out many of the newly placed short positions as new longs flooded into the market. That drove the market up to where it peaked near $1420 or so. From that point on however, the trend among long position holders has been lower or down while the trend among short position holders has been higher or up. In other words, the biggest speculators on the planet are selling gold, and selling lots of it.
The peak in hedge fund SHORT POSITIONS occurred in early July of this year when their combined futures and options positioned reached a substantial 80,147. This week's number is still well below that coming in at 62,589, but the number has been steadily rising since the end of October and this does not yet include the activity from Wednesday, Thursday and today, Friday, of this week. Look for this number to grow larger in next week's report barring some sort of upside reversal on Monday or Tuesday of next week.
What this translates to is very simple even if it is disconcerting for those bullish gold right now. The number of bulls continues to fall as more and more investors/traders flee the precious metals sector in favor of high yields in equities. Once again the DOW is over 16,000 and the S&P 500 has now broken firmly above the 1800 level. With those kinds of gains, who needs gold is the new trading adage.
Until something happens which derails equities and sends shock waves of fear throughout the financial system (something which rattles CONFIDENCE) it is difficult for me to envision gold moving higher other than occasional bounces from short covering. Look at the VIX or Volatility Index. It is stuck at multi-year lows. The complacency in the system is nothing short of astonishing. There isn't a care in the world in the minds of most investors/traders!
This no doubt will not especially endear me to some friends in the gold community, but the chart and the pattern is what it is. Wishing it were otherwise or complaining about it unfortunately changes nothing of the present reality. Until the bulk of market participants change their views regarding gold, the trend in the metal is down.
One last thing - hopefully these comments based off the COT report will put an end to any more of that foolish "FLASH CRASH" talk as if the gold market is being slammed lower by the nefarious bullion banks. They are NOT SELLING but are buying - the report confirms that as well. When it comes to gold, some simply refuse to open their eyes and see the reality of what is happening. The Fed has effectively herded the masses OUT OF GOLD and INTO EQUITIES. Their pals at the bullion banks no longer need to sell gold, hedge funds are doing that quite well by themselves. Any "FLASH CRASHES" are being caused by hedge fund selling; not bullion banks.
Let those who keep propagating this nonsense offer us solid evidence to prove their claims that it is the bullion banks that are behind this latest move lower in gold. Good luck with that however.
The overall NET SHORT position of the big commercial category has fallen to -12,312, their 6th smallest in many, many years. Swap Dealers also have been steady buyers since the end of October.
December gold will enter its delivery period very soon. How much does one want to bet that it will be one of the bullion banks, namely JP Morgan on the BUY SIDE as a heavy stopper for their House Account? Hedge fund selling is being met with bullion bank buying. How do we know this? The report tells us.
Dan,
ReplyDeleteWhat I've ALWAYS done wrong is buy high and sell low. It would seem that given my propensity, in the past I likely would have jumped on the DOW/S&P train and would be feeling pretty good right now. But 2008 destroyed, I think permanently, any want to be in the general market long term.
So, I switched to gold and silver and some miners. No doubt, all have been crushed, but since I started in 2008 and front loaded a lot, my avg price is $1340 in gold and $20.50 in silver.
Would you not, in the whole scheme of things, say 5-20 year horizon, consider gold and silver to be reasonably low enough to start adding to positions given the state of everything in the world?
I know gold can drop further. And silver. but would it not be a decent time to start nibbling here, regardless of what the charts say, if I am in it long term?
Or is there no end? The hedge funds are shorting. And JPM will likely be buying those back. And then they'll be turning around and repeating. I sense that the bump to gold in JPM stopping out for themselves will raise the gold price $10 and then selling it back will drop it $100-$200 for a continued net downward move. Does it ever end?! What do you see long term?
Thanks,
Mike
Cortopassi - Mike - See my reply to Concord which reflects how I feel about gold for the long term. I own it for insurance against the current madness. Funny thing about the crowd and about euphorias and manias. They tend to last longer than many think that they can but when they stop, they collapse with blinding speed.
DeleteI am not sure who said it, (might have been the guy who wrote about THE CROWD, but it goes something like this - people tend to lose their sanity/reason en masse but only come to their senses, slowly and singly. Once the illusion is seen for what it is, then the rest of the herd realizes it all at once.
What I do believe is that long term, gold will be higher than it is today. I just do not know when CONFIDENCE will begin to break down and this gargantuan mountain of debt will begin to wreak its inevitable consequences upon us all.
I have read where the price will fall until it is under the cost of production.
ReplyDeleteAt that point the miners will start to pull back production.
The best cure for low prices….is low prices.
remember that 10 years ago the price of gold was around 300.
Deletethe question is how low a price is a good cure and how long that low it has to stay?
we have no idea so low price might be simply an introduction to even lower prices.
@kris,
DeleteI have an important question for your about your reasoning.
Do you have any idea what were the production costs of 1 ounce of gold 10 years ago vs what they are today.
Please search this.
And update (or not) your conclusions.
Forgot to mention, I think the cost of production is around $1100 for most.
ReplyDeleteThat's a number I see frequently. Do question it as there is lots of possibility for fudging on exploration and capital investment costs.
DeleteWe need a huge washout to force all the last few remaining CIGA's out of the market.
ReplyDeleteIdeally, to coincide with an epic meltup in stocks.
Check out BitCoin, now back over 800 again.
Eventually, fear and greed will kick in and those who went to all those seminars and listened to all the podcasts about how to "protect your wealth" will throw in the towel in disgust.
Mark
DeleteIncorrect..it will be nothing but fear that will destroy the remaining CIGA's.
Well…here is a typical gold investor celebrating xmas this year;
http://www.youtube.com/watch?v=bVTYCn8WQv0
Everyone one else will be on the greed train, price chasing the DOW to the stratosphere.
The market will give plenty of clear warnings well in advance of any correction.
Everyone will have plenty of food, energy, money…and….well…this is the only way to describe it really;
http://www.youtube.com/watch?v=LflpVIh43bs
I think Mike Maloney and some other pumpers were right that this was the greatest wealth transfer in history. After it's over there will be a new UPPER CLASS and a new LARGE CLASS OF INVOLUNTARY SERVITUDE. Perhaps another video describes it just a little more closely:
Deletehttp://www.youtube.com/watch?v=qOfkpu6749w
Dan,
ReplyDeleteI thank you for your incredible site where the unvarnished truth of gold's bearishness has been embraced by 90% of the bloggers here. I have sold much of my positions in gold and gold stocks but in the drop down after ten years of rises in gold prices I have held on to enough of that it hurts to see where we are headed in the next month or so. Still the system has not found a substitute for gold and many of us hold on to at least a part of our positions. I have even assumed that even someone like you may have even held onto to a part of these positions. If not I apologize for assuming that.
What I am trying to say is gold after five thousand years heading for irrelevance? I know you are not saying that. I have suspected gold and its shares could go even back to 2008 levels but who of us is going to not see their position whittled down to nothing when and if gold rebounds back to relevance with all the QE and corruption set to blow up the system as it did five years ago. I have never seen a sure thing like shorting gold with impunity as it appears now. Never. Believe me if it was a sure thing I would consider it. What is that metaphor in investing when everyone gets on one side of the boat? I thank you again for being a counterpoint to all those who used their ten years of credibility on gold to keep us in it. I like so many got greedy thinking it was as sure thing on bull side. Wow that seems like a long time ago.
Concord; What nobody forecasts is that gold may indeed now go to sleep for another 15 years or so; see the '80's and 90's charts; bulls and bears just cutting each other up from 1000-1550; that is all in sparks, swb
DeleteConcord;
DeleteI still firmly believe that in the long run, gold is going higher. Either that or we have to believe that men can print money into existence indefinitely with no consequences whatsoever. When I look at the amount of debt that the US has racked up and see no end in sight to the profligacy, I feel comfortable holding the metal as protection against what I consider will be an inevitable devaluation of the Dollar. I just do not know when the timing will be.
I view gold as insurance against that sort of thing. Just like any insurance policy, you hope you really never have to use it, or call it in so to speak but if you do, you are very, very glad that you have it.
Besides, the circumstances in society that will arise should the economic or monetary system begin to crumble will be so horrific and so difficult, that I really do not wish to see that sort of thing or have my children experience it either. More so my children.
The problem in my mind is that these meddlesome Central Bankers are just making matters worse. Sure, they have managed to stave off the effects of 2008 but has anything really changed other than the fact that Wall Street is giddy with delight that a perpetual motion machine ( in one direction only) has been provided for them to play in.
The Scriptures teach that the Borrower becomes the Lender's slave. I will go with that any day over the new economics.
In the meanwhile, as a trader, we try our best to read the current sentiment of the crowd and trade accordingly to hopefully profit from this madness while it is ongoing. It will eventually come to an end. When it does, I just want to be able to recognize the signs.
Concord
ReplyDeleteYou are not alone in how you feel. You said something that we should all remember " after tens years of rises", actually it was close to 12 years that gold was up continuously. That is an almost unheard of run, consequently the correction is also outsized.
Quote by Warren Buffet "be fearful when others are greedy and greedy when others are fearful" think of how that statement pertains to the investing world right now.
It looks grim right now Concord but I still have my core position, you are not alone. Does it hurt, you bet it does.
I think we are either at or very close to capitulation.
I have yet to hear any analyst say that gold will not turn around, even Armstrong is saying a turn in trend will come in 2014 (maybe Jan).
This nasty correction was needed, gets rid of the weak hands.
Dan:".. Hedge Fund Selling offset by Bullion Bank Buying..." --which of these two entities is considered " smart " money and usually right in long run? Thanks.
ReplyDeleteWolf Wisdom - I commented on this very topic on the KWN MEtals Wrap for this week so tune in to that tomorrow when Eric has it posted up and you can get my thoughts on that. It might surprise you!
DeleteHave a good weekend,
Dan
Thanks Dan for this.
ReplyDeleteYou seem more emphatic this time, as opposed to the more hinted at fall in pog during the bounce to $1420. I needed a hearing aid back then, now I have got this amplified scream ringing in my ears. :)
Jonathan;
DeleteI am trying to gauge sentiment which is constantly shifting it seems. Right now I keep a close eye on both interest rates here in the US and the reported gold holdings in that big ETF, GLD. Both of these things in combination with the price action and the COT Report are telling me that gold is currently out of favor in the West. Hopefullly we can pick up when that changes and shift sentiment accordingly.
Dan -
ReplyDeleteI am going to try to give you a different perspective as to where we might be at. But, believe me, Dan, you are the MAN!!!!
* I am not as concerned with the ^hui as you are. I use the proxy GDX. GDX was actually cheaper on June 26th than today's ending low price. You say 210 is violated - you are the man - but look at GDX on June 26th. Maybe with a dividend you have me beat ;).
* The correlation between the USD and JPY for the last 2 months is "perfectly" correlated to gold. Higher usd/jpy the lower gold. I think the gold market is looking to take a que if the JPY starts a new fresh round of weakness which would be bad for gold. But today's lackluster USD:JPY might explain why there was no significant movement up or down. So we need to see if the Yen collapses - bad for gold. If the Yen appreciates - the gold trade will temporarily move forward.
But I agree that we are still in a bear market. Hope that helps!
jmsvett;
Deletegood comments and solid observations. It does indeed seem as if the Dollar and Yen are proxies for the risk/ risk aversion trade. When the market is nervous about anything lately, you tend to see money flowing into both of those currencies. When it is brimming with confidence, they tend to weaken, especially the Yen.
The Dollar however is still getting a bid because of rising interest rates here in the US which is about the only industrialized nation on the planet right now where interest rates are tending to move a bit higher.
Thanks for the comments.
A follow up - in this centrally controlled environment - think about what is coming up. Christmas shopping!!! I think you see a delayed taper from December to 2014. This is dollar negative. Bernanke wants to go out unscathed. The Obama administration looks better without confidence falling/people spend more money with certainty. So I think further short term drops in gold may be very limited. I think that is part of the reason stocks have been on a tear after December taper talk. It has not been reflective enough in gold. But crude prices seem to be steady.
DeleteThe Iranian deal to sell oil is probably. A done deal, but delayed to 2014 so as to oil companies can distribute better bonuses
I think you need obamacare sign ups as well. No taper in December. After January 1st - taper is coming. The economy needs to heal, and the size of the balance sheet is too big and the potential for trading losses. Will make them slow and eventually stop buying bonds. Imo
DeleteObama will then get his tug of war between rich and poor. Wall Street anticipates a drop in the stock market. Taxes go up big time on the rich to pay for obamas dream of an equal society.
Delete2016 will see a bottom in the stock market. Probably the bottom.
DeleteBefore everyone chisels the final epitaph in gold's headstone
ReplyDeletehttp://www.bloomberg.com/news/2013-11-21/gold-option-wagers-on-surge-to-3-000-was-most-active-yesterday.html
Apparently not everyone is bearish. It would be interesting to know who this is.
I'm not that familiar with options trading but if they were really bullish on gold wouldn't they just buy the securities?? I think they pay extra for the option as insurance in case the gold scene gets worse.
DeleteGeorge Soros also loaded up on options several months ago on Junior miners and as usual the gold pumpers were praising this to kingdom come, and gold only went down from there.
Dean,
ReplyDeleteIt never ceases to amaze me how many bottom pickers there are in the gold market. As long as these guys who have already lost so much money keep trying to load up hoping for a reversal, I think the gold market continues to grind these guys into mincemeat.
I think in 2014 we'll see 1/3 of the gold mining companies go broke.
Funny how investors pilloried FCX management for buying an oil company, now look at the chart of FCX vs. SCCO or ABX.
Definitely pays to diversify, FCX was obviously looking ahead, knowing that a decimation in the metals space was upcoming and they needed to diversify out of that space to keep the company solvent.
Microsoft sells 1 million Xboxes on launch day.
ReplyDeleteFar cry from Gerald Celente's "Gold, Guns, and a Getaway Plan", LOL....
Stay in the system.
Don't get bamboozled by the doom and gloom crowd.
Even Jim Puplava says its time to dump your gold, get out of the bunker, enjoy life, and buy stocks!
http://www.financialsense.com/financial-sense-newshour