"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

Trader Dan's free work will soon be available at www.traderdan.biz

Friday, May 9, 2014

COT Report for Gold

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!


  1. We no longer care about what is said. We just hold our gold. :)
    Even if it drops it wont last forever. All things come and go. Everyone dies. So the main stream can continue to shake but the tree gives up no good fruit.

  2. In 5 more years it will look like heck what was I thinking, in bad times or good. Better safe to hold some than none. :)
    I say well, I better not say......haahahahaha

  3. By the way, I am still employed just not at this Califorpornia commercial leasing company. I was able to resign because I have a future better position. Just for some back ground this entity hired me (thank god 8 months ago). I am grateful. The initial position was fine, until, I did a deal with a long standing customer of mine. I should have thought about what was said during the interview. (Our proposal letter is tested in court). In other words if they sign it and give you a check look out. I was able to get my long standing customer out of an overbilled situation. Seems the proposal letter got us the rights to bill them fees that were rather USURIOUS. I ended up saying no more of that stuff. I would only do deals with new found meat in their data base. Well 8 months of calling 120-150 calls a day. And the kicker...they can listen in on the nifty computer I was given. Yeah, nice guys. Whew. Look I don't mind getting a little rate here and there. It is my job. But lets face it, the world has changed and there is some really shady companies out there. Massage on Monday, Tuesday heading for the hills of Virginia. Following week it is back to the grind in another position. Look folks there are desperate BANKERADOs out there. It ain't easy, and mostly if you get a bank line read the fine print, bound to be a lot of highly undesirable FEE OPPORTUNITIES. Everyone have a great day. Dan, thanks for your blog. I am wondering when the ETF's are exposed? Going to be tough in the metals then.

  4. Dan, I agree with you on the price action in gold. I still can't believe how many pundits discount the action in gold having little to do with Ukraine. If Ukraine wasn't an issue IMO gold certainly would have broke through support at 1278. Silver, and the precious metal stocks have been weak just supporting my view. To me, whats interesting is once Ukraine is settled, which unfortunately I think is going to take quite awhile, is whether gold holds 1180. Personally I think it will, but who knows.Also, as you said Draghi is talking down the Euro, saying he's prepared to act in June if warranted. If he doesn't, I think he loses all credibility if indeed Euroland continues to deflate. If he does decide to do some form of QE, then the Euro currency joins the race to the bottom. Even though I trade on technicals, not predictions, because of all the debt in the world, and so many countries devaluing their currencies, the fundamentals in gold are very strong, and auger for a much higher price in the future.But don't worry,No predictions when or what price.

    1. BOBBO;

      the deal with these currencies is that none of the QE stuff is having the sort of impact on them like many of us thought it would in the sense of debasing the unit. It seems like that is the initial response of the currency but then it rebounds higher as traders do not see the expected inflationary impulse arise.

      Until we see the Velocity of Money really ramp up, QE alone, whether here or perhaps over in Euroland, is going to produce any serious inflation. The reason? Because the money does not seem to be making it into the broader economy. It just gets stuck into equities as specs chase yield in these near zero interest rate environments.
      I am not sure how all this will play out. I would own gold for sure but as to any sense of timing when it might begin any sort of steep climb higher, I have no idea. Right now, that seems pretty remote to me based on what I am seeing in the bond markets.

  5. Great article Dan. Harry Dent says gold will land at $250. Jim Willie says gold will ascend to $50,000. All I know is that many accounts will be destroyed in the process.

    1. Timco;

      I think both of those guys are way, way off base. If I had to pick between the two as to which outcome I would prefer however, I would have to go with the $250 gold. We could all live just fine with that.

      Willie seems to be getting too much sun down there on his brain at this point because life as we know it will not be possible on this planet with $50K gold. The chaos, crime, social unrest, upheavals would be catastrophic. Some of these guys with these ridiculous wild assertions, had better not wish for this crap because they will find that they will have little consolation for their newfound "riches" with gold at that price.

    2. Timco; All you have to do is ask these scoundrels for an audited track record of 2 years or so and listen to the telephone click; or if you are drinking with them and here comes the check, see if they have fish hooks in their pockets. hahahah, they are all shoe clerks with alligator mouths and hummingbird asses; swb

    3. Steve;

      I am still trying to wrap my mind around that last image... where in the world did you come up with something like that? You could add them in to the upcoming Godzilla movie and let them duke it out with him. thanks for a good chuckle

    4. and now too have my feathers been ruffled. everyone knows that hummingbirds technically don't even have an ass.

  6. Indeed Dan. Your objectivity is what makes this blog very special. Thank you for that.

  7. If Jim Rickards et. al. are correct.. is looking at gold via the comex like looking at gold in a vault through a key hole... What happens when you open the door to the vault and there is (just) the one pallet you could see through the key hole and the rest of the vast floor space is filled with empty pallets with "rehypothicated" signs sitting on them?

  8. So Close.
    I hope Dan doesn't waste his time replying to you comment above. You know his thoughts so best you pop back to Turdville and stop clogging up this fantastic, OBJECTIVE, site with the same tired old cack. Bye, bye!

  9. Look. I am willing to admit that I might be wrong. That you might be right. But that being said.. I think I have some reasonable questions. Why can we not have an independent audit of gold reserves? Why is it going to take years to comply with Germany's request to repatriate a small fraction of the Gold we hold for them? Why did Germany want it back in the first place? What are the implications of Fed officials admitting they are bankrupt on a mark to market basis? Reasonable people should be willing to admit that the Dollar's hegemony is not advantageous to Russia, China, or India. That being said what actions will they take to undermine our position in that regard. What does it mean when Putin says publicly that they have other options then replying in kind with sanctions... and then we have largest failure/direct only take down (98+++ percent) of 30 treasuries the next day? To just ignore these questions I suppose is fine. But if there is not a reasonable explanation then what is one to think given that information in toto?

    1. Dan
      I agree with your analysis which should be no suprise. I would like to add a few thoughts. I have long worried about the consequences of gold at $50k, $25k, $10k, $6k and even $2500 to mention some of the forecasts I have seen since the unfortunate day I was persuaded that gold was the way. It would make the "Bullets, Beans and Bandages" guys look like Pollyanna.

      Trying to put myself in the shoes of bankers and others in the finance industry, I see one more compelling argument for keeping the funny money in the vault or stocks. Between the regulators and the FED that liquidity can be withdrawn rapidly forcing the bank into BK if the money is in consumer loans. They can't get it back fast enough to maintain reserves as the rules change again and yet again.

      So Close
      I am concerned about all the things you mention and more concerning out fiat economy. However, it really doesn't matter! As long as the government keeps the economy barely alive and the aid payments flowing, no body will care and life will continue on it present corrupt course.

      If sound money concepts were introduced, we would have the tragic collapses of our civilization. Until the great unwashed majority cares about the source of the dole it isn't going to happen.


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