Commodity Trade Mantra

Is Gold Now Really Set-Up For A Move Higher?

Is Gold Now Really Set-Up For A Move Higher?

Is Gold Now Really Set-Up For A Move Higher?

There’s just too many loud voices – plus self-promoting self-aggrandizers like Harry Dent – screaming for $800 gold.  Last time Goldman came out with an $800 gold target, gold ran from $1100 up to $1400. Will these carnival barkers be right this time around?  I don’t know.  As Bernanke famously said, the Fed (banks) have new technology that enables them to create electronic dollars (Comex paper contracts) in unlimited quantities in order to direct the market in the direction of their command.

Of course, we all are left wondering why Bernanke ended his Fed chairmanship a few terms earlier than he needed to and decided to not stick around to face the consequences of his actions while he was pressing the print button on his keypad.

But I digress.  As for $800 gold?  It might have to wait.  The bullion banks have quietly shifted their trading book to a net long position.   And, in wash-rinse-repeat fashion, the hedge funds and the small retail traders have taking the other side of this and have gone net short Comex gold – significantly net short Comex gold:  (click image to enlarge)

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It is very rare for the hedge funds to run a net short position. Since the CFCT/CME began disaggregating the COT report into more trading “buckets,” the hedge funds have only been net short on on two occasions – now and in July/August earlier this year.  Gold staged an 11% move in August.

In the close to 15 years that I’ve been involved in the precious metals markets, when the bullion banks take extreme positions – either long or short – remarkably the market always seems to move in their favor.  Funny thing – that – because the law of averages would suggest a remote probability of this event occurring with 100% certainty.  We know the CFTC has never seemed to be able to find any indications of malfeasance or market manipulation – wink, wink.

Currently the hedge funds have their second largest net short position in the history of COT reporting.  Back in early August the net short hit a little over 14k contracts.   This explains the erratic trading in gold this past few weeks.  I would also be willing to wager that the hedge funds will show their largest net short position ever when the COT report is released.

Oh ya.  There was one other time when the hedge funds – labelled as “Large Speculators” prior to 2006 – were net short, and it was only for a couple days:   early 2000 right before the bull market in gold was launched.

 

 

Courtesy: Investment Research Dynamics

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