Commodity Trade Mantra

Gold may Spring a Surprise on Rising Uncertainty & a Slowing Global Economy

Gold may Spring a Surprise on Rising Uncertainty & a Slowing Global Economy

Gold may Spring a Surprise on Rising Uncertainty & a Slowing Global Economy

I think the gold market may surprise us again. Over the long term, people have realised the benefit of portfolio diversification. Holdings in gold-backed exchange traded funds were 2,051 metric tons by Oct. 14, the highest level since June 2013, according to data compiled by Bloomberg.

Bullion will benefit as the market realizes traditional methods aren’t working when it comes to monetary policy. Demand for gold will be reignited as real interest rates, or yields minus inflation, remain low, keeping gold competitive with other assets.

Gold Speculators scale back Long Positions

In the latest gold and silver commitment of traders (COT) report, paper players made big strides in bringing the market back into balance — and setting the stage for an eventual rebound, says John Rubino.

Speculators – who tend to be emotional and therefore wrong at the extremes – scaled their long positions way back, while the commercials – who time-and-again sucker the speculators into those emotional extremes and then fleece them – are now considerably less short. Here’s the raw data, courtesy of GoldSeek:



And here are the changes from the past two weeks in percentage terms.


When speculators are scaling back their longs and commercials are scaling back their shorts, that’s a sign that the market is moving towards balance. The longer these trends continue, the more likely it becomes that precious metals prices will rise in the ensuing six or so months.

That inflection point (when downtrend becomes uptrend) may still be a ways off, however. The players in this market had placed such extreme bets that even after two weeks of slimming they’re still positioned fairly aggressively. In other words, speculators are still pretty long, so if this indicator remains valid more price declines are in the cards.

But another few weeks like the last two and we’ll be close. So now might be a good time to start nailing down target prices for favorite miners and perhaps entering some low-ball bids.

This bottom, when it comes, could be an important one for a variety of reasons, including the sea change taking place in the thinking of the world’s major governments. Since their recent aggressive monetary ease didn’t work, they’ve apparently decided to repeat the experiment with an extra zero or two. This combination of low-to-negative interest rates and insanely high government deficits will create an environment in which gold and silver – bought at the right price – should be among the best things to own.


The SPDR Gold Trust ETF fell $0.67 (-0.56%) to $119.36 per share on Friday. Year-to-date, the largest ETF tied to the spot price of gold bullion has gained 17.64%, but is off more than 8% from its yearly highs set in early July.

Gold is Simply Taking a Healthy Test of Recent Lows

Technical analyst Gary Tanashian writes that investors should ignore the dogmatic, ideology-driven opinions of gold bugs and focus instead on the facts surrounding gold prices.

I have not gone off the deep end and joined the community of boosters, promoters, pompom waving cheering squads and general cult figures who you can just tell not only want you to adore gold, but in some cases need you to act on your adoration and buy gold or gold stocks. Read into that what you will, but the history of investors burned by the pitch, which tugs at people’s morals, sense of right and wrong and plain old common sense, is a long and storied one.

As in any market, you are the mark, the target, the food… unless you do the educational work to the degree required in order to have your own – not some expert’s – view on things.  That includes we would-be geniuses who think we can write for you and provide worthwhile information along the way in your decision making process.  The day I stop learning and working to be better is the day I stop doing this, and that’ll be the day they fit me for a pine box.

By educational work, I don’t mean understanding the difference between a Fibonnaci retrace percentage and a time cycle.  I don’t mean understanding the difference between a bottoming pattern and a consolidation pattern, an open pit mine and an underground mine or any other of the very real things that an investor or trader considers.  I mean you have to do work on yourself because no one has got definitive answers and you should not be seeking those… from anybody!

The reason I am being so presumptuous as to assume there are people who fall victim to the pitches and the plays on peoples’ greed, fear and naivete is because I know you are out there.  I know because this gentleman is presumably writing to an audience…

Gold Manipulators Will Be Punished

I agree with him, gold manipulators not only will be punished, they were punished in unrelenting fashion for four long years.  When the HUI Gold Bugs index lost key support (as we noted in real time about the 460 area) in 2012, still they cheered and poked monetary authorities in the eye with dogma and belligerence about the coming of QE3.  This kept the gold bug faithful in the game.   After we noted distinct signs of economic firming in early 2013 and gold proceeded to crash major support in the 1500’s, still they pumped.  The PTB, the PPT and the unholy Goldman/JPM/Fed trinity were putting the poor gold bug army to the test.  ‘Stand up to it boys, I’m right here with you!’ cried the generals from well behind the front lines, ‘it’s just paper gold manipulation!’

You only need the first paragraph to know where the above-linked article, published today, is going.

The selling of gold we saw last week was another desperate attack by the BIS and some central banks, together with the bullion banks, to manipulate the gold market lower. We saw over 40% of annual production of gold being sold last week which is 1,000 tons. The physical market continues to be strong which I will discuss further on.”

Actually, the first sentence is all that is needed.  We heard that physical demand, China demand, Russia demand crap all through the bear market. It did not matter then and it does not matter now.

The article appears at TalkMarkets, a website that is an equal opportunity presenter of market views.  As luck would have it, Steve Saville checks in at the same site on the same day with a distinctly different view.

The Gold Manipulation Silliness Continues

While we are on the subject of level headed analysis, on Tuesday right after the latest CPI report, ‘Inflation Guy’ Michael Ashton will be doing a live video Q&A event (sign up available at the end of his most recent article linked below).  Inflation is another thing that the promoters have totally screwed up with respect to gold.  Only sometimes will gold be an inflation play (hint: rising yield curve, rising inflation expectations; hint: ignore academic experts Harvey & Erb’s generalities because there are anti-gold promoters as well, which is a whole other kettle of fish).

You’ve seen me write about it time and again, and the details are beyond the scope of this article.  Inflation is more complex than ‘they are inflating, buy gold!’ (from the ‘got gold?’, ‘go gold!’ crowd) or‘see, gold is a bad inflation hedge!’ (from the Harvey & Erb crowd) that we are fed in the media.  But this guy knows inflation and he knows the mechanics behind it as well.  It just so happens that our preferred view is an inflationary one for a phase, and I am going to try to tune in to this video Q&A.

Inflation Dogma Dies Hard

These two writers and others are also posted routinely at for a reason and that reason is that right or wrong, they give well thought out arguments for a particular stance.  Ashton is must reading, especially after each CPI release.  Anyway, there it is in Ashton’s headline; the word “Dogma”.

Shifting back to the gold sector, let’s consider “Dogma”:  noun; a principle or set of principles laid down by an authority as incontrovertibly true

The quote above is by someone who incontrovertibly knows that gold is being manipulated.  There is no questioning there, no theorizing or mitigating phrasing.  “The selling of gold we saw last week was another desperate attack by the BIS and some central banks, together with the bullion banks, to manipulate the gold market lower.”

Okay, the manipulators are desperate.  Got that?  The manipulators were desperate when gold crashed 1500 in 2013.  The manipulators were desperate when Ebola threatened to “trigger a rebirth in gold and silver prices” in 2014.  Tell me, who the hell was desperate?  The powers that be?  I don’t think so.

Who was desperate was who is back to being looked to for professional guidance about gold; the usual gold bug suspects, the authorities on the subject (and their dogma).  This is where the gold bug“community” needs to take a time out with each individual participant asking himself and herself some hard questions.  After the lessons of the bear market, I think many now do.  But all too many do not.  I know this because Mr. BIS manipulation up above is not alone.  They have come back out of the woodwork and a troubling number of people seem to think ‘well, they’re the gold experts and I think gold’s in a bull market so it’s okay to take their advice again’.

Ah, folks?  You might want to check that view.  Dogma was dogma in the last bull market and it got people killed when the bear came around.  Dogma remained dogma all through the bear and today in a potentially potent new bull market dogma is dogma still.

The BIS did not take gold down.  What took gold down was unhealthy leadership that kept piling on until well past the top in the sector in July/August.  We know this because we look at the Commitments of Traders each week and they have been historically stretched to the‘high speculative net long with correspondingly high commercial net short’ side of things.  That’s all there is, folks.

Of course there are reality manipulators trying to tell you about the take down in gold at the hands of the evil commercial entities.  You know, the mining companies hedging product, various other industry players hedging by necessity if not choice and yeah sure, some good old fashioned banker manipulation in there to boot, at least to some degree.  All markets are manipulated to one degree or another.  It’s the markets and people should not personalize it.

Frankly, I wonder what took gold so long to correct.  The Commitments of Traders remained at a strained configuration for a long time before the sector finally cracked, as it needed to in order to purify the investor base of the various momentum freaks that had finally caught on during the course of the first half of 2016.

Last week commercial entities reduced their hedges and the substance abusers reduced their longs, both to significant degree.  That kicks off a bullish trend.  But if some pumper starts sounding the all clear you might want to realize that while the precious metals complex is due for a bounce, only a completed trend back toward a bullish CoT configuration like January’s would be likely to signal THE bottom.

gold commitments of traders

Look, for several weeks leading up to the corrective breakdown, I dumbed down NFTRH‘s charting to this simple view of gold’s weekly situation.  I wanted subscribers (and myself) to calmly remain aware of the test that was likely out ahead.  As gold dwelled above then-support at 1300, we noted that a breakdown would not be the end of the world because the weekly EMA 75 lay down below (currently 1247) like a magnet.  The test, a very logical and technically healthy test, is now ‘on’.

gold weekly chart

Why is it a healthy test?  Because if gold holds there to keep its bull market intact (we kept the ‘higher low’ parameter in view week after week as gold topped out) it will have taken out the momentum addicts, the trend followers and the come-lately greed heads, and most of all, it will have taken out those who listened to the promoters who were on top of the world a few weeks ago but are now practicing damage control with the old “gold manipulation” manipulation (of people’s capacity to remain naive).

Hedge Funds Are Piling into Gold

Insider Monkey: Gold has become a preferred asset class for hedge fund investors given the rising uncertainty in the financial markets as well as a slowing global economy. The problems at Deutsche Bank have spooked investors, sparking concern of a rerun of the Lehman Brothers crisis, while the flash crash of the pound reflects the increasing fragility of the financial system. Major central banks are also continuing with their policies of quantitative easing. The US Federal Reserve has also failed to increase interest rates despite an improving domestic economy.

Given these factors, it makes sense for investors to hedge their bets by raising their asset allocation to gold. The Diwali festival in India is also a positive catalyst for gold as jeweller demand in India increases sharply during this season. Exchange traded funds are a flexible and easy to trade option for investing and trading in gold. There are many gold ETFs in the markets which have been designed in a way to replicate the value of different gold indices.

At Insider Monkey we track over 740 hedge funds and other institutional investors, whose 13Fs we analyze in order to get some ideas about their collective opinion towards different stocks and we use the data as part of our strategy. At the end of June, SPY remained the most popular ETF among the funds in our database, but it registered a slight decline in popularity. On the other hand, some gold ETFs saw an inflow of capital from the hedge fund industry. Having said that, let’s take a closer look at the top five ETFs that investors we track are most bullish on.

SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is an exchange traded fund which tracks the S&P 500 index. The fund has 508 holdings with Apple Inc. (NASDAQ:AAPL), Microsoft Corp (NASDAQ:MSFT) and Exxon Mobil Corp (NYSE:XOM) being among the top ones. Information Technology (IT) is the largest sector accounting for nearly 20% of the total holdings of SPDR S&P 500 ETF Trust (NYSEARCA:SPY) followed by the financial sector. Both these sectors were the best performing ones in the S&P 500 index. SPY has an estimated 5-years EPS growth rate of 10.7% and a net expense ratio of approximately 0.1%. Among the funds we track, 94 funds held more than $24.89 billion worth of SPY shares at the end of June, compared to 99 funds that held $15.44 billion worth of shares a quarter earlier. The fund has returned approximately 15% over the last year. The current NAV stands at approximately $216 and is trading just 1.5% shy from its 52-week high price. More than $13 billion were infused into SPY during the last quarter itself.

SPDR Gold Trust (NYSEARCA:GLD) is an investment trust that tracks the price of the gold bullion. It is the world’s largest physical gold-backed ETF with a market capitalization in excess of $38 billion. The shares in this ETF represent an ownership of gold bullion with one share of this ETF representing one-tenth of an ounce of gold. It is one of the top 10 largest owners of gold in the world with HSBC Bank being the custodian of its bullion. The ETF has returned more than 18% year-to-date and was present in the portfolio of 72 funds that we track at the end of June up from 63 a quarter earlier; the total value of their holdings surged by 32% to $8.9 billion during the second quarter. The NAV currently stands at around $120 with a gross expense ratio of 0.40%.

Market Vectors Gold Miners ETF (NYSEARCA:GDX) is the largest gold miner-focused ETF, the main holdings of which are gold mining stocks like Barrick Gold Corp (NYSE:ABX), Newmont Mining Corp (NYSE:NEM) and GoldCorp Inc (NYSE:GG). Canadian companies form more than 50% of its total holdings. GDX has gained approximately 70% year-to-date, although it fell by 12% in the last month. Gold miners are much more sensitive to fluctuation in the price of gold, hence this ETF is more favorable for investors who prefer a higher beta. During the second quarter, the number of funds from our database holding GDX shares surged by seven to 43, and the aggregate value of their positions appreciated by 70% to $1.6 billion. This ETF is trading at $23 and has an expense ratio 0.53%.

With a market capitalisation of $27 billion, iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) is currently trading at very close to its 52-week high of $125.8, and has returned 9% since the beginning of the year. Among the funds we track, 40 funds held shares of IWM worth $1.09 billion at the end of June, compared to $770.08 million held by 39 funds a quarter earlier. This ETF seeks to replicate the performance of Russell 2000 Index which comprises small cap stocks in the US. It is the largest small-cap ETF in the US and is highly liquid with a low expense ratio. Small cap stocks in general have a higher beta than large-caps and are more dependent on the performance of the domestic economy than the larger stocks. Investors who are more bullish on the US economy as compared to the global economy find this ETF to be more attractive, rather than the ETFs tracking broader market indices such as the S&P 500 and Dow Jones. On the negative side, IWM is more volatile and less diversified as compared to the large cap ETFs. IWM is a good way to play on the dynamism of the US, which is one of the world’s most innovative and open economies.

iShares MSCI Emerging Markets Indx (ETF) (NYSEARCA:EEM) has been a preferred choice for funds who want to invest in the emerging economies around the globe. It holds over 800 large and mid-cap emerging-market stocks worldwide. With the Fed expected to raise rates by the end of the year, the smart money is preferring to stay away from the risks of investing in emerging market stocks. This is also reflected in the number of funds tracked by us holding this ETF, which slid to 39 from 45 during the second quarter, while the aggregate value of their holdings also decreased by 43% to $2.6 billion. Major emerging markets such as Brazil, South Africa, Russia and others are also facing major political and social issues besides economic headwinds from falling commodity prices. All these uncertainties have made the fund holders less bullish on emerging economies. The ETF is currently trading at $38 nearly equal to its 52 week high price and has returned more than 10% in the last three months. The dividend yield stands at 2.01%.


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