Due to the Thanksgiving Holiday last week, the usual Friday release of the Commitment of Traders report from the CFTC was delayed until today, Monday.
Here are a couple of charts noting the latest data through Tuesday of LAST WEEK. It is a shame that we cannot get the data as soon as each day is completed but alas, things are what they are. I am especially interested in seeing whether or not the hedge fund category has gotten a bit more aggressive on their long liquidation than they did last week.
Notice that their reduction of longs was relatively modest by recent comparison but that they were quite aggressive in playing the short side of the gold market. See the huge spike upward in the red line?
Something else caught my interest. Notice the Commercial category ( Red line)which includes the Processer/User/Merchant(s). It is noted on the chart by the Ellipse. For the first time ever on this particular chart they are now NET LONG. That is a rather remarkable development. In and of itself, it does not mean all that much since it is speculative money flows that drive today's markets but it is noteworthy nonetheless. We'll watch this number as well as that of the Swap Dealers in subsequent reports to see if this new trend continues. My guess is that as gold moves lower and especially if it stays down near the cost of production for any significant length of time, we will see both Swap Dealers and this Commercial Category building more long side exposure to the gold market.
Based on the reported Deliveries so far this month at the Comex for the December gold contract, JP Morgan continues to be the largest stopper. Again, at the risk of overly repeating myself - it is speculators that drive markets, not commercials so the most important group to monitor will be these enormous hedge funds. While their overall net long position is very close to the same level is was earlier this summer when gold spiked to an $1180 low, they are still NET LONG this market and have not yet managed to move to an overall NET SHORT position.
In other words, strong physical buying of the metal MUST SURFACE almost immediately or these hedge funds are going to batter the metal even more as they are now following the lead of their computers and getting more aggressive towards the short side.
The short covering bounce that occurred last week at the end of the month of November sure did not last long! Traders welcomed in the new month of December by brutally mauling both of the precious metals with them particularly having it in for silver which is down nearly 4.4% as I type these comments.
Strength in the Dollar on the heels of higher interest rates in the US Treasury markets, brought a large amount of selling across the commodity complex, with the exception of crude and the liquid energies. The result - both gold and silver collapsed down through important chart support levels touching off an avalanche of sell stops and bringing in more new short selling as traders attacked the metals with a vengeance.
The carnage was even more evident in the mining sector ( HUI ) which fell through psychological chart support at the 200 level. The beleaguered sector is no doubt going to see casualties as I expect that we are going to see the end of some small mining concerns as acquisitions/buy outs do not seem that far off now.
I hate pointing this out but the lowest monthly CLOSE of the last five years was 193.87 made back in October of 2008 just before the market got wind of the start up of the first batch of QE. Currently, as I type these comments, the HUI is at 197.43. a mere 4 points away from that level. If the miners cannot garner some serious buying support right here, right now, at these levels, I fear we are going to see this index drop all the way down to that spike low below 160 before this is all done.
Until we see some sort of evidence that the sentiment towards the metals has turned for the better, there is simply no interest in owning the miners, even at these distressed levels because no one really knows how long both gold and silver prices are going to remain at these lower levels. Only investors with the longest of time frames as interested in owning these. The vast majority do not want to tie up precious capital in non-performing assets, especially when those assets continue to plunge.
Silver lost chart support at $20 and plummeted very swiftly into the support level noted on our interview over at KWN this past weekend, namely, $19.25 - $19.00. It is now a definite teenager. Failure to hold here and a drop below $19.00 would portend yet another plunge in the near future towards $18.15 - $18.00.
Look at what happened in gold when it lost support in the red rectangle... sell stops were hit and triggered and in turn brought in a fresh wave of short selling into gold. The volume was very large as has been the pattern in gold for some time now. The short covering rallies seem ferocious when they occur, but their volume remains muted compared to the volume occurring within the direction of the trend, which is DOWN.
Switching over to the Daily Chart, there is also reason for concern. Note the LOWEST CLOSES of this year, not the lowest price, but the CLOSES. Gold is within $5 - $6 of that level. Bulls will not want to see current price penetrate that level without an immediate, sharp rebound higher. If such a thing were to occur (the breach of that level) it would indicate that the pent-up buying that was present this past summer when gold fell to that level is NO LONGER WITH US. Obviously, that would portend another drop lower that would challenge the actual spike low near $1180.
At this point, the bulls are in serious trouble unless they can take the price back above Friday's high near $1255. That would provide a glimmer of faint hope that a potential for a double bottom exists. As things now stand however, the Bears are firmly in control of the market. Bulls need a miracle.
I want to state again for the record, this is the reason that I become so disturbed by these constant predictions concerning what gold must or will do. Just last week we were treated to yet another one stating that a big short covering rally was imminent yet again because it was the opinion of this novice "expert" that there were a lot of hedge fund short positions in the market. Yes - - this self acclaimed expert on gold possesses some esoteric knowledge that the rest of we mere peons do not which informs him exactly when a short position is too large and must be covered. Meanwhile gold gets pummeled down even further. When will we ever be rid of this sort of thing? And people wonder why gold keeps getting sold off - there are still too many damned bottom callers.
Here is the simple truth - the TREND IS LOWER. Until it changes, rallies are going to get sold, dwindling gold stocks or no dwindling stocks, hedge fund short positions or no hedge fund short positions, backwardation or no backwardation, Chinese buying or no Chinese buying, whistle blowers or no whistle blowers, etc, etc., etc. When the trend changes that will indicate that the sentiment towards gold, which currently is abysmal, will have changed. In other words, the market will tell us when the move lower is reaching an end.
