This week's Commitment of Traders report from the CFTC for gold, shows that last Friday's plunge resulting from the surprisingly strong payrolls number, which was promptly erased within a minute when news about a downed helicopter in Ukraine hit the wires, was the result of a rash of hedge fund buying. They added around 12,500 new long positions and only covered a bit less than 400 existing shorts. I suspected we would see more short covering on their part but that did not occur, at least not through Tuesday of this week.
What did occur however was that the spreaders had a field day piling on nearly 15,000 new spreads as I suspected these guys were up to something with that bizarre price action last Friday.
What has also caught my eye is the rather rapid build in new short positions being established by the commercials and swap dealer category. They have wasted no time using the geopolitically-induced bounce in the metal to sell it as it approached $1310 and slightly above that level.
It has been fascinating for me to watch has been the stubborn bullishness of the speculative community in the face of a deteriorating chart pattern. Specs refuse to give up the ghost on the near-permanent bullish sentiment which has characterized this gold market for some time now. This is what concerns me as gold drifts ever lower to that $1280 support level.
The events in Ukraine continue to engender speculative buying in the market but the fact that we have so many in the spec camp remaining bullish with a market that continues to flirt with major chart support is rather unnerving.
I want to emphasize that the POTENTIAL, for a sharp sell off exists in gold if that level gives way. I am not forecasting anything but merely examining the sentiment in this market. Bulls have all their hopes pinned on the ability of gold to hold above $1280 on a closing basis. Ukraine continues to bail them out but with the ETF, GLD, continuing to bleed out gold, I have to wonder how long Ukranian events are going to be able to prevent a breach of chart support. That plus the fact that the HUI ( mining shares ) show very little if any buying enthusiasm at the moment makes me nervous when it comes to the ability of this market to remain above that chart support level. If I could see either a sharp jump in the ETF reported holdings and/or a sharper rise in the HUI breaking out of its range to the upside, I would have a different view. So far we are not seeing either of those occurrences.
For the last seven weeks, the HUI has essentially gone nowhere. It is stuck in a range with the top up near 235 or so and the bottom near 215. The ADX shows a trendless market ( ranging ) with the bears having a slight edge due mainly to this week's poor showing in the mining sector.
"So far, so good", has thus been the message coming from the gold bulls but that can also be said of the guy plunging off of a 100 story building as he passes each new floor on the way down, " So far, so good", until he reaches the bottom and we all know what happens then.
In spite of all this, I want to continue to emphasize that while this COT report is making for some interesting reading, it has very little value as far as anything predictive at this point because gold is almost totally at the mercy of Ukranian events and no one knows how those things are going to develop or what form such a development might even take. We simply do not know and thus the reason for the very nervous gold trade right now. Until we get some sort of resolution to that crisis, gold should continue to garner some buying support. But just as that is true, so is it also true that many large traders are looking at rallies in gold as selling opportunities. Their focus is here on the US and that means they are looking at the withdrawal of the QE and eventually rising interest rates are bearish headwinds for gold. The market is thus stalemated between those two forces for the moment.
As to which force will gain the upper hand, it is unclear. I have no idea and truth be told, no one else does either. Anyone who claims that they do is full of BS unless of course they have a private line straight to the heavens and can discern the future before the rest of we mere mortals can. That means we sit and wait and watch the price action and go from there. Ukraine flares up = gold goes up. Ukraine abates - gold goes down.
Pick a flower petal or roll the dice - the end result is the same - you are just guessing, not trading.
Ignore the price predictions and the dipsticks which feel compelled to constantly make them. Listen to the market and you will be just fine.
By the way, old crop May beans managed to end the session above the $15 level. Traders are focused on that 130 million bushel carryover number. However, beans at these levels have heretofore managed to crimp demand so we will see just how long they can stay up here. With May in its delivery process, we'll see how many beans show up for tendering and who stops them.
Both corn and wheat stayed sharply lower and closed down sharply lower as well. Some of the pressure on wheat was tied to the weather forecasts for some rain in the parched Plains. The corn number was a shockers and has cast a bearish pall over that market for the time being. It should be kept in mind however that we do not yet even have the crop in the ground yet so a lot can happen between now and the final harvest that could drastically alter the supply scenario for corn.
Suffice it to say, good weather this growing season is going to act as a real damper on corn prices and that is a good thing for livestock producers and poultry guys. Unfortunately the ethanol lobby will still be around to gobble up way too much corn as far as I am concerned. I know my corn-growing farmer buddies love that stuff but I also have friends in the cattle/hog business and they hate it. At least we get DDG's so it is not a total loss but still, the idea of burning our food in a gas tank to appease a bunch of global warming alarmists is nauseating to me.
Spurs are up 2- 0 in the Portland series... way to go San Antonio!
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