Is Gold Ready To Move Higher?

The simple answer to that question is: who knows, eventually it will. I like to look at the Commitment of Traders report for signals. I think the COT offers better information than looking at charts, although I like to use my COT analysis in conjunction with charts. My fund partner keeps a database of COT gold and silver data going back to May 2005. Over this time, there’s been a strong correlation between the direction of gold, the net long position of the hedge funds, the net short position of the banks and the total open interest in gold (silver) futures.

Over this time period (Since May 2005), the total open interest in Comex gold futures has averaged 429k contracts. The hedge fund net long position in gold futures has averaged 142.8k and the bank net short position has averaged 168.1k contracts. Since 2015, we’ve had two price cycles starting with the low in December 2015. At the December 2015 low in gold, the hedge fund net long position was 9,750k contracts and the bank net short was 2.9k contracts.  The December hedge fund net long was an extraordinary low net long position and the bank net short was extraordinarily low. This makes sense given that mid-December marked the bottom of the nearly 6-year bear cycle within the secular gold bull market.

If we go back July 2016, the open interest in Comex gold has declined 206k contracts – a staggering 26 million ozs – 737 tonnes (25% worth of gold produced annually).   The Comex banks were short an eye-popping 340k contracts – 34 million ounces, or 964 tonnes of paper gold. This represents an undeniably enormous effort by the Fed via the Comex banks to cap the price of gold.

As of the last COT report (Dec 12th, the hedge fund net long was 107k and the bank net short was 119k. The overall open interest was 446k, about 20k contracts above the average open interest since May 2005.  In a “horsehoes and handgrenades” context,  we should have seen the bottom a week ago.

The open interest report thru Tuesday (Dec 19th) showed 446k open interest. Assuming most of that drop in o/i was decline in the hedge fund net long and bank net short, we should start to head higher, but don’t expect this happen continuously, in parabolic crypto-coin fashion.  The gold bubble is yet to occur.   I can’t promise that gold will move higher from here.  The best we can do is assess probabilities based on historical data relationships as they apply currently.

I want to mention briefly that Dennis Gartman has exited the long position in gold in his theoretical portfolio. Gartman’s market calls have a spectacular track record as a reliable contrarian indicator. I kid you not. This would suggest that the gold market is at or near a bottom.

Back in the September, I advised my Mining Stock Journal subscribers that I suspected the coming sell-off in gold – manipulated sell-off, of course – would take gold down to mid-$1240 area.   It hit $1241 on December 12th.  Sometimes the coin does indeed land on “heads” when I call “heads.”  I also discussed the hedge we were implementing on our mining stock portfolio and provided details on the my opinion of best way for subscribers  to hedge a junior portfolio.  The hedge easily saved us at least 7% (700 basis points) of performance this quarter.

The stock I presented in the last issue (Dec 14th) is up 12% and it’s still highly undervalued, especially given that it will start producing in late 2018.  You can learn more about this stock and subscription details using this link:  Mining Stock Journal.

9 thoughts on “Is Gold Ready To Move Higher?

  1. I agree that nothing is certain with gold pricing, nor any other commodity price subject to manipulation through the derivatives complex. But I just finished reading Alisdair Macleod’s latest article concerning gold in 2018. His analysis suggests gold will start it’s move in 2018. He outlines various reasons for his forecast but the main one, in my opinion, is the pricing of oil in yuan, coupled with the yuan for gold contract.

    This might be the out many oil traders have been looking for, and I expect many will jump on board, including the Saudi’s. This could be the game changer, particularly if China intends on settling gold commitments for yuan through international markets. The LBMA will be the go-to place for this demand, and if large physical is as hard to come by as some suggest, prices will have to rise despite the phony futures market. In addition, dollar demand should decline putting downward pressure it’s price vs gold.

    Long term though, I don’t see gold’s really big move coming until the credit markets fail. That’s when it becomes the only serious collateral for international trade settlement.

    Having said that, it’s like waiting for Godot. Like many others, I’ve been disappointed many times in the past.

  2. Although it doesn’t make me an expert on China (but then most professional “China Hands” are self-blinkered for their own reasons), but having lived there for some years I did witness firsthand China’s batshit lunatic economic self-destruction behind its Potemkin Village facade of debt-based fixed-assets such as empty skyscrapers and fake shopping malls. The local cadres who took kickbacks from bad loans to build all that useless shit (often built upon perilously decreasing farmland after forcing out the farmers who have become itinerant poor, now facing government extermintation as their backup of construction work is drying up) – all to create fake “GDP”…well they could have saved a lot of economic destruction by just PRETENDING on paper that they built it all, instead of wasting material resources. ANYway, as for pegging China’s RMB to gold or to any real material wealth, it’s never going to happen (or if it does it can’t lost long), because RMB-denominated debts have gone toxic like Zimbabwean currency on steroids.

  3. And now slightly off-topic: In light of today’s Bitcoin action, I think Bitcoin charts should replace “candles” with icons of Wile E Coyote, like this:

  4. …BUT, then, still…

    …and now in FAIRNESS to many of the Bit/Crypto-Fags who ARE HALF-RIGHT about yearning for an alternative to state-controlled-fiat-currency (but more than half-wrong about thinking Bitcoin is the answer!)…

    …in fairness, THIS is a prophecy about the Federal Reserve and all of its bastard central bank half-siblings!:

  5. And (further re my above comments), THIS is the ESSENCE of the (post August 15 1971) US Dollar AND ALL fiat currencies!…

    …INCLUDING Bitcoin and all crypto-currencies!…

    …whose power is ONLY based, 100 percent on VIOLENT FORCE! (Which is why NO crypto-currencies will EVER compete with any fiat-currencies such as the US Dollar BASED ON VIOLENCE AND NOTHING ELSE!)…

    …well as I was saying, THIS (these next videos) is the ESSENCE of ALL fiat currencies! AND it’s why Bitcoin is, in the long run, just a catamite, a passive slave ultimately subordinate to those who have real power!:



  6. Is Gold Ready To Move Higher? In my opinion gold will go higher and Markets will go down , down , Dow Jones going parabolic , it’s sign we getting very close. I don’t know if it will be engineered or not , Masters can’t defy gravity for ever.

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