As the great Trevor Denman would say: "And away they go"! (fast forward to 2:05)
My intention this morning was to discuss this:
We seem to be very near a capitulation of the spec longs where those who are going to sell will have sold.
At the same time, The Cartel is rapidly covering short positions.
I'm getting increasingly bullish.
Let's see what tomorrow brings.
And now look what tomorrow has brought! Free money!!! Bailouts of everyone and everything!
Rather than focus on the inevitability of the failure to print our way back to prosperity, let's go ahead and dissect the latest CoT report, as there are several interesting trends within it.
First up, the perspective of someone who actually knows what the heck he's talking about. I'm going to have a slightly different take on the numbers but you need to be aware that my interpretation is not necessarily the correct interpretation.
I haven't spoken with Dan about this but I think I know where he's coming from. Margin rates are high and traders, both spec and commercial, are being driven from the pits and, without their interest in participating, it will be difficult for the metals to rally.
I have a somewhat different point of view. What I see in this week's CoT are markets that are very close to a bottom. Why do I say that?
1) Spec longs in both gold and silver were bailing out at a very quick pace. This is bullish for two reasons:
a) It's a contrarian indicator, first and foremost. If specs are a sort of "dumb money", do the opposite.
b) Spec money will, eventually, flow back in. You want to be ahead of it.
2) Commercial longs are also selling but commercial shorts are covering.
a) More long liquidation leads to a point where everyone who is going to sell will have sold.
b) If The Cartel is the "smart money", follow them, They are covering shorts which means they are buying.
Let's look at the specific numbers. In gold, specs longs fell by over 11,000 contracts while, at the same time, spec shorts covered 13,000 contracts and The Cartel covered another 12,000. Longs selling and shorts covering...that's exactly what we're looking for when we go looking for signs of a bottom.
In silver, the picture is much the same. Spec longs fell by almost 10%, over 2200 contracts. All the while, The EE covered a huge 3,270 of their shorts. Again, specs bail while the banks cover. This is a bullish set-up.
And the trend has continued this week as we've approached December contract expiration. As of Monday, the total OI in gold had receded to just 426,000 contracts and silver fell to 99,000. It would seem that many traders liquidated their December contracts but chose NOT to roll into Feb12 or March12. That pent up demand is clearly the main driver of the huge move you are seeing back into the metals today.
And this is ultimately why these CoT numbers are so bullish. Similar to late September, almost all of the spec money had exited the PM pits as of yesterday. Today you are seeing the initial impact of that money rushing back in. Are the bottoms in? Probably. Especially with the kick-starting of the printing presses today. Let's see where this all takes us. There will likely be a pullback later this week as the reality and gravity of the situation takes hold. Could that be the dip to buy? Maybe. Let's wait and see. I'll keep you posted.
In other news, the Middle East continues on the path to war. Here's just some of the latest:
Also, I last night I found this interesting piece from the always-entertaining Mark Steyn. Worth a read:
Lastly, just a reminder. Today is the final day of the great, once-in-a-lifetime, genuine, real deal, autographed, big yellow hat sale. I'll be deleting the "sticky" thread at midnight EST so anyone wanting their own piece of precious metal antiquity had better act fast...or wait until the next "hat contest".
Have a great day! TF