Take a look at the chart and you will see what I meant in choosing the title for this post.
In the last two months alone, the NET LONG position of the hedge fund community has been cut in half. That has come about by a combination of both long liquidation and the addition of new short positions. Currently it is at 71,376.
What is rather disturbing is that the number of outright long positions ( both futures and options combined ) of 129,921, remains rather large compared to the last time gold was trading near these levels in the first week of June of this year.
Back then, hedge funds were holding 121,428 outright long positions when gold was at the $1244 level. Their short holdings were at 70,364 compared to this week's 58,545. That put them at a NET LONG position of 51,064 compared to this week's 71,376. That is a net contract difference of over 20,000 contracts!
That is why it is important that $1240-$1235 did not hold. The potential for additional long side liquidation PLUS net shorting from these technically oriented hedge funds, opens additional downside probabilities. If the funds begin to wash out and also move more towards the short side, the selling pressure would intensify. It would be enough to set up a test of $1200 without some sort of upside catalyst occurring very, very soon.
"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