COT: Gold

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COT: Gold

Posted: May 08 2010     By: Jim Sinclair      Post Edited: May 8, 2010 at 3:19 pm

Filed under: Jim's Mailbox

Greetings Jim,

The powerful rally following the long-term breakout in early April continues to gain strength and the Gold Currency Index closed at a fresh all-time high for a second straight week. Technical indicators are bullish overall on the weekly chart, suggesting that this move can certainly go much higher. Is there any doubt that gold is now the currency of choice around the world? Of course, anyone who has been watching the secular bull market in gold over the past nine years has known this for a while, but it looks like conventional wisdom is finally starting to understand what is happening as well.


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Posted: May 08 2010     By: Dan Norcini      Post Edited: May 8, 2010 at 2:19 am

Filed under: Trader Dan Norcini

Dear Friends,

This week’s Commitment of Traders report details what we have come to expect with gold for the most part but with one exception which merits mentioning.

Front month gold closed at $1162.20 on Tuesday of last week (April 27, 2010). It went on to make a high of $1192.80 on the following Tuesday of this week (May 4) before settling lower on the day at $1169.20.

The translation – the COT report covers the time period during which gold added $30 to its price before a wave of selling shaved off most of those gains when the reporting period came to a close.

If you look at the COT data, the Managed Money side of things increased their net longs over this time frame by approximately 3,400. The other large reportables increased their net long position by roughly 6,100. The public increased their net long stance by 1,000 contracts.

The Producer/User/merchant increased their net short stance by about 11,500 as usual absorbing all of those buys.

Here is where it gets a bit interesting. The swap dealers who are almost always net short in gold, actually DECREASED their stance by approximately 950 contracts. That means they were net buyers on the week.

I am not quite sure what to make of this as of yet and want to see another week’s worth of data but this is a bit unusual behavior for that camp. These banks who originate the swaps and who then look to hedge those generally tend to mirror the funds only in the inverse, selling when the specs are buying and buying when the specs are liquidating longs. As a general rule, they tend to move in sync with the Producer/user/processor/merchant category as can clearly be seen on the chart. I want to add this is not the case in many other markets but definitely it is the rule in gold.

While the latter category is not that far off from its peak net short position (8,400 or so to be a bit more precise), the Swap dealers are nearly 20,000 shy of their largest net short position.

The funds are approximately 24,800 shy of their largest net long position.

Obviously there is still plenty of room for the specs in which to play.

I want to monitor this especially now that gold has taken out $1200 to see what these swap dealers did the last three days of this week. Unfortunately that will have to wait until next week’s release of the COT data.

Again, there is no hard, fast rule set in stone which states that the players cannot exceed these levels. Indeed, when gold really gets cranking these levels will be eclipsed by newer and even higher ones as has occurred throughout the entirety of this now decade long bull market in gold.

Click chart to enlarge this week’s COT data in PDF format with commentary from Trader Dan Norcini

COT 5-7-2010.jpg

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