And it's shaping up to be a wild one. From the worsening situation in the Middle East to the looming meeting of the EU "leaders", this week holds the potential for great volatility. Which way? Both, probably.
By now, regular readers have noticed that, at the present time, I'm far more interested in gold than silver. The charts for gold are certainly more favorable but the CoT report bears out this rationale, too. In fact, the latest CoT report looks extremely bullish to me. Check this out:
Survey period 11/22/11 - 11/29/11
Spec longs declined by 8,035 contracts to 186,031 for a drop of over 4%! We are now just 4,000 spec long contracts away from falling all the way back to the 182,000 spec long level last seen at the capitulation price lows back in September.
The drop in commercial longs is even more extreme. At the late September lows, the comm long number was around 192,000 contracts. As of this latest report, it stands at 152,000. That's a drop of over 20%!
The Forces of Darkness were sitting on 359,000 shorts back in late September. After covering a whopping 17,000 contracts last week, the comm shorts are at 345,474.
Lastly, total OI in late September stood at 465,000. This report has it at 423,000 or 10% less.
What do we make of this? First of all, it's decidedly bullish. Longs are pitching contracts and The Cartel is covering. This is exactly what you want to see in preparation for the next, significant leg upward. The only potential flaw in this argument is the MFing Global situation. You have two things to consider:
1) Are longs quitting the market for good for fear another cash-grab, theft job by some well-connected crony of the CFTC and the O'bottom administration?
2) Will the longs soon return? Will they be lured back in by greed, asset allocation and/or the desire for to diversify and insure?
Time will tell. I, for one, suspect that #2 is the more likely scenario. As we roll into 2012, the prospect of overt QE will become increasingly apparent. As gold turns higher, specs will come streaming back into gold and UP will go the price.
You can see this playing out on the charts, too. I'll be following this pennant very closely over the next couple of weeks. Once gold finally breaks out of it and the closes above $1800, it will finally be time to get excited again.
As mentioned above, silver just isn't nearly as interesting. Someday soon it will be but that day is not today. First of all, the COT isn't as compelling. The spec longs are at 24,000 (versus a late September low of 25,000) and actually increased by a handful of contracts last week. The total comm longs are almost identical to where they were in September and the EE shorts have only decreased from 62,000 to 59,000. Additionally, total OI in late September was 102,000 and now it stands at 99,000.
The CoT tells me that more time is needed for silver to form a bottom. The charts show this, too. Price continues to trade in the $30-36 range that we've been discussing. Look for this to continue. You can plainly see where price could stay in this range through almost the entire first quarter of 2012. Let's hope not but don't be surprised if it's March or so before I finally get excited again about the short-term prospects for silver.
And here you go...While I've been typing, look what has hit the tape:
This ought to be enough to bring a little "risk on" action, at least for a few hours.
That's all for now. Have a great Monday! TF