Speculators Remain Net Long as Gold Drops Lower

I picked the headline because I wanted to add the following: "And are losing money".

I am attaching two charts to this short post. The first is the overall COT positions from today's report.

Take a look at the lines reflecting the positions of the various groups of speculators. Note that all three groups, the Hedge Funds, the Other Large Reportables and the Small Specs or general public, all remain NET LONG in gold. And guess what - they are all losing money.

Also, what concerns me is that based on this Friday's report, there are still more than a considerable amount of these losing positions left to unwind. As of the close of trading business on Tuesday ( the day through which the weekly report covers ) the price of gold was $1236.70. As of the close today, it was $1216.60 or another $20 lower. There is no doubt that the breach of downside chart support levels has taken out more of these spec longs, but the question is how much pain can they endure, especially when margin calls begin mounting?

The next one is a close up of only the Hedge Fund positioning in relation to the gold price.

What stands out to me is the fact that most of the hedge fund longs are now underwater in a bad way. This is the category in particular that can really move markets due to their sheer size and the amount of firepower at this disposal. They are running, of that there is no question. What IS the question is what is their threshold for tolerance of pain.

Some will hold on until or unless $1180 is broken. Some will exit if psychological support near $1200 collapses and gold then changes handles once more from "12" to "11".

Also, I am not taking into consideration that many hedge funds are now moving more to the short side of the market.

Look at how quickly they moved over to the short side of silver and look at what they have inflicted on that metal. They broke it down below $18.60, then $18.00 in no time flat.

Switching gears just a bit... here is the US Dollar index chart. King Dollar is definitely back once again! The greenback put in the BEST WEEKLY CLOSE in more than 4 years, 51 months to be exact!

In looking over the chart, I do not see much in the way of overhead resistance until near the 86.50 region. If the Dollar does not receive some sort of negative news from some quarter, further strength bodes ill for the precious metals.

On a closing note for now, today's Cattle on Feed report was a tad on the negative side with placements coming in a bit higher than the market was looking for. It should be pointed out however that the placements number in and of itself, is the smallest number since 1996. So even though the number was larger than what the market was expecting, we are still not exactly being swamped by an excess of feeders.

Cash trade did break loose this afternoon at $1.59, which was down from last week. That is still higher than October cattle are trading which remain at a discount to the cash markets; however, the lower cash and slightly less friendly COF report might bring a bit of selling into the market early Monday morning. We shall see as trading those reports can be notoriously vexing at times.

One last thing - the weather forecasts out through the end of the upcoming week, show nice, warm, dry weather - excellent for harvest in those areas where the combines are rolling and for finishing the crop up in the more northern latitudes.

New crop corn and beans are already flowing into the pipelines and that is being reflected in the basis in those areas where harvest is ongoing.