"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


Friday, April 26, 2013

Notes on Gold's Commitment of Traders Report

A brief summary - All classes of speculators, hedge funds, other large reportables, and the general public, were net sellers of gold this past reporting period.

The other side of the equation, the buying, was done by the commercial category (bullion banks, etc,) and the swap dealers. The swap dealers, in particular, are a very good group of traders since they trade not only for clients and for the purpose of hedging, but can also speculate for their own interests.

I should note here that both of the latter categories, remain net short overall but continue to consistently reduce that position as they cover existing shorts and institute fresh long positions.

The small specs, the general public, are now showing the smallest net long position on record from this report which dates back to the beginning of 2006. In going back even further to 1999, they still have the smallest net long position that they have held in over a decade. That is quite remarkable!

The general public is usually a very good contrarian indicator as they are notorious for being on the wrong side of a trade at critical turning points. However, that does not mean that they are always wrong. You must admit, the small specs who have been playing gold from the short side have done pretty doggone well this year while hedge funds have not! Recent action however has not been kind to many of them since a great deal of them have sold short beneath $1400 are those positions are probably blown out of the water by now. Many of them were casualties of this week's rebound in price.

The hedge funds, while remaining net long, continue to rapidly draw down that net long position. As I suggested last week and it seems to have been confirmed this week, hedge funds covered some shorts LAST WEEK on the second attempt down towards $1330 that held. Then they waited for prices to rally towards $1400 whereupon they began to sell anew. It is this group which is selling rallies in gold and will do so until the technical posture of this market shifts from one being bearish to one being bullish. For that to occur, gold must recapture a "15 handle and KEEP IT!.

One thing we have yet to see is the hedge funds moving to an outright short position in gold as they have done in copper and may perhaps be threatening to do so in silver (its fortunes are tied to copper for the time being). This implies that should they actually begin as a whole to approach gold from the short side, the potential remains for their firepower to take price lower towards that support zone that has now been established between $1330 - $1325. That would indeed set up a battle between the physical market buyers of the metal and the paper sellers!

I covered this in this week's KWN Metals Wrap with Eric King over at King World News so be sure to tune in to that on Saturday when it is posted to here this in more detail.

1 comment:

  1. Usual strategy of bears has been to defend a strong resistance level and wait for bull's exertion / weakness, then strike.
    ma20 daily also correspond to the 62% fibo retracement of the 1560-1320 panic drop, i.e 1485-1490 $ level.
    It's a good spot for them to initiate new shorts.
    I'll wait to see if bulls have the strength to cross this line (which I doubt they have on the short-term)


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