There is not really all that much happening with this report for the week. Today's fireworks will unfortunately not show up so we are left to waiting for another week to try to read what happened today.
Through Tuesday of this week, the big commercial category, the swap dealers and the hedge funds were all net sellers. The buyers were the "other large reportables" category and the small trader or general public.
All three category of speculators remain as net longs in gold, although the hedge fund category has rather sharply curtailed that exposure over the last 6 weeks. They have reduced their net long exposure by approximately 50,000 contracts since its peak of this year when they were at 138,429.
What I find rather noteworthy is that in spite of gold's retreat away from near $1400 in mid-March, and the continued sharp drawdown in reported ETF holdings out of GLD, speculators remain stubbornly bullish in regards to gold.
That is a double-edged sword. On the one hand, their refusal to liquidate more longs is preventing aggressive selling from taking place and keeping gold above chart support. They are certainly doing their best to hold the metal up.
The other side of that sword is that any downside CLOSING BREACH of an important chart support level ( $1280 - $1270 ) means we are going to see quite a wall of technically related selling occur.
A good example of this can be seen in the early morning reaction to the payrolls numbers. A big wave of selling engulfed the market immediately. Were it not for that flare up over in Ukraine, it is highly unlikely the market would have recovered from that.
So far the bulls are preventing prices from closing below that key support level. It has penetrated several times now only to encounter buying, buying tied to a geopolitical event.
Based on what I can see at this point, any lessening of tensions over in Ukraine are going to see aggressive selling. Any escalation will see further short covering as what took place today.
Any of you who are soothsayers and know how events over there are going to play out, please inform the rest of us so that we may place our positions accordingly.
In the meantime, we mere mortals must wait and see.
I am noting a bit of weakness or more accurately, hesitancy in gold to stay above the $1300 level here late in the session. It should be noted that some very big interests are looking to sell any rallies in gold as they see some of the fundamentals that have been supporting it being removed as the year progresses.
We are talking mainly a phasing out of the Fed's QE program. Today's payrolls number further fanned talk about that and potential interest rate hikes in early 2015. That seems a good ways off at this point but if traders see a trend of stronger economic data and especially any upward movement of the US Dollar, gold is going to come under more selling pressure. I would continue to watch interest rates here in the US.
The yield on the Ten Year which was up near 2.7% at one time early today, ended up falling as the safe haven bids brought it down to 2.591%. That is a pretty big swing for that particular Treasury.
Oddly enough, the VIX actually moved lower today. I am not sure what the heck to make of that. I would have expected to see it creep up somewhat. It could be that US stock traders are of the mindset that while the events over there in Ukraine are worth noting, the situation is not likely to spill over outside of that immediate area anytime soon. That might or might not be true but based on that VIX reading, I would think that traders are of that opinion until or unless the events prove otherwise.
The flip side for gold remains the same - geopolitical events are supporting the metal and will continue to do so as long as the market is concerned with chances of escalation in tensions. Look at what the downing of two helicopters can do if you doubt this!
Remember, when a situation is this fluid, stay nimble. Don't get married to any one position for too long. And I mean either long or short! If you really are risk adverse, just stay on the sidelines and watch the rest of the players chop each other up. Find another market to play in - there are plenty of them besides gold.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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