2012 is nearly over and it feels like it has been a tough and lousy year. And it has. But has it been that bad? Could it have been a lot worse? Damn straight it could have been.
As we entered 2012, silver had bounced off of $26 but was still only trading near $28. Gold had touched $1550 and was near $1570. There was no current, overt quantitative easing program, only Operation Twist, and we were just beginning an election year with all of the attendant MOPE and SPIN regarding an economic recovery. Things looked pretty darn bleak.
Of course, we know what happened next. The metals rallied through January and February. They swooned until August and then rallied again into October before being beaten back again. It was all painful to watch and very little fun to write about...BUT...the metals have eked out a gain this year. Gold is UP nearly $100 and silver is up $2 or about 7% each. Again, I'm not trying to slather lipstick on the proverbial pig here but...given all of the things we faced in 2012...that's not too shabby and, as we head into 2013, the situation looks almost entirely different.
The U.S. economy is dragging along the bottom. The U.S federal deficit and debt are growing hopelessly out of control and the country's credit rating is poised to be downgraded again sometime very soon. Global central banks are accumulating physical metal at an increasing pace and the Federal Reserve is openly printing $85B/month. My point is: If the metals can survive 2012 with all of the headwinds, how might they trade in 2013 with the wind at their back?
Yesterday's CoT showed a continuation of spec long liquidation in gold and the silver specs finally gave up, too. For the week, gold was only down $12 yet the specs shed over 14,400 net longs, which allowed the Gold Cartel to cover another 14,400 net shorts. But silver fell almost $2, with most of the damage coming on the successive days of 12/19 and 12/20. The specs responded by dumping almost 8,400 gross longs. Apparently the pain became too extreme to hold on any longer.
So, as we head into 2013, here is a CoT snaphot. The large specs are long a gross total of 200,436 contracts. The Cartel is short a gross total of 327,413 and the Cartel net short ratio is 2.34:1. As we entered 2012, the large specs were long 167,413 but The Cartel was short a nearly identical 326,454 with a net short ratio of 1.95:1.
The silver picture, once again, is more intriguing. Ponder these numbers:
DATE PRICE LARGE SPEC LONG CARTEL LONG CARTEL SHORT CARTEL RATIO
12/27/11 $28 24,026 41,224 55,356 1.34:1
2/28/12 $35 38,012 33,802 78,395 2.32:1
8/14/12 $28 32,317 47,797 71,199 1.49:1
10/2/12 $35 47,236 35,788 93628 2.62:1
12/24/12 $30 39,620 44,302 91,010 2.05:1
A couple of things that jump out at me:
- The Cartel gross short position has risen by 64% since over the past twelve months.
- The Large Spec gross long position is also up 64% over the past twelve months.
- The Cartel gross long position is nearly back to levels which have twice indicated price bottoms in the past.
- The current Cartel net short ratio could be considered "neutral" at 2.05:1.
Finally, just a few words about price. The charts don't look too hot so don't be surprised by some further weakness in the short term. This would undoubtedly inspire even more long liquidation which would "improve" the CoT structure even more. But, as noted above, the fundamentals for 2013 are vastly better than 2012 AND this whole "fiscal cliff" nonsense will only serve to make them even more positive. Therefore, hang in there and buy the dip. Take delivery and add to your stack. Trust your instincts and be ruled by logic, not emotion. Look around and prepare accordingly.