11-Week Run
Gold is on a huge 11-week run. The last time gold did that was at the 2011 high.
Is a pullback in order? A Gold COT chart says otherwise.
Gold COT Chart
Understanding Futures
In the futures world there is a short for every long.
The first horizontal box has Large Specs, Small Specs, and Commercials. This is It’s Old COT reporting.
The second box distinguishes producers from the swap dealers (i.e. market makers). This is New COT reporting.
Those are the actual data links for the above chart.
Large Specs, Small Specs, Unreportable Positions
Large specs are generally hedge funds that trade futures in size. Small Specs are typically individual traders.
Sometimes small specs are called unreportable positions. If you are big enough you have to tell the CTFC what your position is.
Producers
The producers mine gold and sell it via futures. They are always short.
Swap Dealers
The Swap Dealers are commercial market makers who take the other side of the trade. They do so because as Market Makers they have to. It’s their business to make a trade.
The swap dealers are hedged. They do not much care if prices rise of fall. If that was not the case, they would be blown out of the water on big, sustained rallies. That does not imply honesty as the dealers have been caught manipulating. Rather, they manipulate if their hedges get out of balance or they see a chance to profit. The latter could be in either direction, up or down in the price of gold.
Commercials
The commercials are the Swap Dealers + the Producers + the Manufacturers or Jewelry maker who buy gold to use it. It is a confusing mix which is what brought about the disaggregated reports (the New Cot reporting).
We frequently hear things like “commercials covered” their shorts or the commercials are the “smart money”.
That is nonsense. The producers don’t buy gold and the swap dealers are hedged (long gold and short equivalent futures). There is nothing “smart” about being forced to take the other side of a trade.
This subject comes up all the time.
For example, on December 27, Tom McClellan said “Gold COT Data Call for More of a Drop”
Gold was at the $1500 level.
On March 12, McClellan said Gold Moving Lower Despite Covid-19.
McClellan said “Gold prices should start trending down now, and for the next 5 years, according to this week’s chart.“
Managed Money
Managed money is a way of disaggregating the Big Specs from the Commercials. Some people consider the big specs to be the “smart money” and the small specs to be the “dumb money”.
Reporting Frequency
Cot reports come out on Friday for the previous Tuesday. Thus the above chart (except for the price, reflects Tuesday, July 21.
Every week, we do not know what happened between Tuesday and Friday.
Room to Run
Analysis of the Gold COT Chart suggests there is still plenty of room left to run. Details show why.
- Normally, gold advances in the short- to mid-term as the big specs or managed money expands position.
- The opposite occurs during long liquidations.
That is what prompted me to write on April 6, 2020 Gold’s New Breakout is Very Bullish: Here’s Why.
It is bullish that gold advanced with smart managed money missing most of the move. At some point FOMO kicks in.
A pullback can happen at any time, including now, but the fundamentals for further advancement: monetary printing, COTs, and of course faith in central banks are firmly in place.
Mish
It seems to me that without the ability to use gold as currency, or better, legal tender in the US, “investing” in gold or silver is little different than investing in bitcoin i.e. little better than “investing” in something/anything! that is hoped can one day be more truly useful within the economy than as just another name to gamble on in the Corrupt Casino games some disingenuously, even duplicitously, call “markets”.
Silver and gold will continue upwards. The FED has failed on the Interest Rate stimulation. There’s too much debt to finance so the financial system is overwhelmed. Rates have to be near zero. Below zero, we know, does more harm than good. The economic powers find themselves swimming underwater, searching for an opening. Oxygen! We need oxygen. QE is financial oxygen. But how much QE can we take? History offers clues. For investors Gold and Silver is oxygen and they will buy what they can when they can.
Thanks for the lesson. I really appreciate that. I always wondered who the players were.
“…but the fundamentals for further advancement: monetary printing, COTs, and of course faith in central banks are firmly in place.”
Are you thinking inflation? Inflation gold?
$Trillions of stimulus, and I use that word loosely, does not matter until suddenly one day it does. Near zero interest rates and debt levels to infinity suggest that sooner or later investors will lose confidence in the mighty USD. Until then the cost of holding gold versus bonds suggest gold has a ways to run.
The only thing I know about gold is that it is an asset (not money). Therefore, treat it as such. IOW, there is a time to buy it … and a time to sell it. Good luck!
This says nothing because it’s true for everything. When you go buy a Cheetos at the store, you are selling dollars for Cheetos.
No sane person would buy Cheetos.
It’s currency.
An asset is something which has productive potential.
Gold is really only valued for its currencistic (?) properties.
Are you a time traveler?
You sound Medieval.
I live in a fiat world.
A guy at peak prosperity thinks the gold price the result of US-China tension. I’ve hinted here a couple times (once someone deleted) that showman Trump has plans for a US-China war around election day.
Shhhh… We don’t anyone to notice……👍
Gold up ? ….or is it rather about the $ losing value?
Not just the dollar, all fiat. It’s global deflation, with Gold as a base currency it costs less Gold to buy everything.
“Some people consider the big specs to be the “smart money” and the small specs to be the “dumb money”.”
…And anyone dumb enough to believe there is even a lick of difference in how smart different people are at picking random numbers, are definitionally the dumbest-of-all money….
Hi ho Silver!!
I expect Silver will reach 50 before the end of next month.
I doubt it (but hope you’re right).