CoT and Chart Review

383
Sat, Dec 8, 2012 - 1:29pm

Considering where we began the week and, also considering where we were on Tuesday, last week didn't turn out half bad. Suddenly, the charts look pretty good and the FOMC meets this week. Got your rally hat on? I do!

But first, before we get rolling, check out these two charts. On the left is a 15-minute Feb gold. It shows a classic, non-news BLSBS pattern. After initial hesitation, the news is aggressively gamed by those in charge. Price gets jammed lower to blow out some stops, panic some longs and inspire some fresh shorts. Then, in the blink of an eye, price reverses and everyone playing gets screwed again. Within the hour, calm is restored and it's as if nothing has happened...unless you're one of the unlucky ones who tried to battle Goliath. On the right is a daily chart of the Jan13 crude. LOTS of noise out there regarding Syrian invasions and chemical weapons but none of it seems to be bothering the crude pit. In fact, there seems to be no reason to even pay attention to crude until and unless it breaks UP through $90 or DOWN through $85. Until then, maybe just trade the range with tight stops?

OK, onto the main set of charts. First, let's look at gold. I did not print off a daily chart but you should know that we put another "engulfing candle" on the chart yesterday and this is usually a very good sign (if it's a bullish one...which it is). On Thursday, the Feb13 gold had a high of $1704.80, a low of 1687.10 and a close of 1701.80. Yesterday, the Feb13 saw a high of 1706.90, a low of 1684.10 and a close of 1705.50. Note that Friday's low was lower than Thursday's low and Friday's close exceeded Thursday's high. Quite bullish, indeed.

Look closely at the 4-hour chart but look even more closely at the 2-hour. On the 4-hour, gold has clearly broken through the two-week long downtrend, regardless of how you draw it. On the 2-hour, notice the almost-perfect, reverse head-and-shoulder bottom and the clear resistance at 1710. Taken in concert, gold certainly looks poised for an UP week next with future resistance near 1725 and the old Iron Dome of 1735-1740.

Silver looks nearly identical to gold. It has also quite clearly broken its 2-week downtrend and is poised for a resumption of the rally. With a similar, reverse H&S in place, silver needs to first clear resistance near 33.30 and then move on toward 33.80 and 34.40.

And now on to the CoTs. I recognize that the reports are almost always groomed and painted by The Cartels in order to mislead the reader, nevertheless, I knew that this week's survey would be significant simply due to the scope of open interest reduction and size of the price moves, all related to the expiration of the Dec12 contracts. I was not disappointed.

GOLD

For the reporting week, price fell nearly $50 while OI fell by a whopping 45,000 contracts (9%). There's really nothing unusual here but you need to see the numbers because they will be quite instructive when we compare them to silver.

Large Spec Net Long = DOWN 34,671

Small spec Net Long = DOWN 6,445

Gold Cartel Net Short = DOWN 41,116

As you can see, it was exactly as expected. For every net long contract a spec sold, The Cartel covered a net short. Some of the internals are interesting, though. For example, the gross short total of The Cartel fell by 46,346. That is a nearly 12% reduction in just one week. It takes their total gross position down to 353,483 and brings the Cartel net short ratio down to 2.6:1. For perspective, at the last price peak near $1800 in early October, The Gold Cartel was short a gross number of 405,520 and had a net short ratio of 2.98:1. At the last, major bottom in mid-August, The Gold Cartel was short 291, 358 and had a net short ratio of 1.98:1. At this point, the gold CoT has reestablished a neutral structure and does not stand in the way of a rally in price.

SILVER

Boyohboy. This is where the action and intrigue are. First, read the paragraph above again and commit some of those numbers to memory. For full perspective in silver, those gold numbers are very important.

For the reporting week, silver was down about $1.25 and the total OI fell by 9,000 contracts or so (5%). The casual observer would rightly expect the silver CoT structure to show roughly the same changes as gold. The casual observer would be dead wrong.

As noted above, on the price drop last week, the Large Specs in gold shed 34,671 net long contracts. On a similar price drop in silver, the Large Specs shed a grand total of 3. That's right...3! The Large Specs dropped a rather miniscule 880 longs but also covered 877 shorts. That's a net change of 3. The Small Specs played along a little but but still nowhere near what JPM et al would like to see. The Small Specs dumped 1,324 longs but they, too, covered shorts to the tune of 507 for a net change of just 817.

So where was the action? All of it was within The Cartel category. The Cartel members who held some long contracts (not JPM) dumped 4,134 longs and The Cartel members who are short (including JPM) covered 4,954 shorts. So, on the $1.25 price drop, The Silver Cartel only saw their net position fall by 820 contracts and their net short ratio barely budged at 2.52:1. Again, refer back the the gold CoT. The Gold Cartel reduced their net position by over 41,000 contracts or, roughly, 15%. On a similar price move, the Silver Bad Guys were only able to reduce their net short position by 820 or, roughly, 1.3%.

What the heck is going on here? Since time immemorial, price shakeouts like the one last week have been staged to force the specs to sell in order for the banks to cover. During last week's beatdown, the only ones selling were the smaller commercials. The large specs barely budged. This is an extremely unusual and potentially significant development and it continues the trend we've suspected of strong hands becoming the primary longs in silver.

And now, for perspective, check this out. Back on 10/2/12, The Silver Cartel was actively working to cap price below $35.50 in order to keep silver within its 2012 range. It worked, obviously, and price fell below $31 before recovering to current levels. But here's the crazy and wild part:

10/2/12 Large Spec gross longs = 47,236

Current Large Spec gross longs = 50,204

10/2/12 Silver Cartel gross shorts = 93,628

Current Cartel gross shorts = 96,924

And let's throw this log on the pile, too. Since 10/2, the "everyone but JPM" Cartel has also added gross longs, growing from 35,788 to 38,410.

What in the name of Ted Butler is going on here?? Are we finally seeing the beginnings of our "Civil War" in silver? It increasingly appears that JPM is being painted into a corner. Where normally The Big Short would sell into rallies and cover on selloffs, that doesn't seem to be working this time. The non-panic, non-selloff of the Large Specs is extremely encouraging for all of us. I'm so stunned by it that words fail me. Not only last week but in the two months since the early October peak, the Large Specs have been buyers, not sellers. Even from a net perspective, the totals are astonishing. On 10/2 and with price above $35, the Large Specs were net long 38,118. As of last Tuesday and with price below $33, the Large Specs are net long 41,272.

I could go on and on but I think you get the picture. For the first time in memory, the Large Specs seem emboldened and willing to hold paper silver, even in the face of orchestrated Cartel raids. The key now will be the everyone-but-JPM commercials on the next rally. Will they aggressively re-add longs, buying back the 4,000 they sold this week and then even more? Time will tell. For now, this week's silver CoT is very, very encouraging. The charts look good, too, so let's see what the rest of the month brings. I'm still an ardent believer that 2013 is going to be an historic year for silver. The data and price action from this past week only bolsters my confidence.

I hope that everyone has a safe and restful weekend. Please come back on Monday, recharged and ready to go. With the FOMC meeting coming up, the week ahead promises to be wild one.

TF

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  383 Comments

Indenture
Dec 8, 2012 - 8:35pm

Mr. Fix - The petro dollar

Mr. Fix - The petro dollar implodes. Got it. Oil Guys choose what they want to be paid in. Got it. Why would they choose silver and not gold (and this is strictly a question of form. Gold takes up less space and is therefore a better use to keep your money, especially sice we are talking about billions of doollars a day). So why would oil countries choose to trade oil for silver instead of gold? Gold just makes more sence and poeple tend to do things that make sence. <i>"It is my belief that we will not know its true value, until the world's reserves have vanished at current market prices. And laws of supply and demand that cannot be manipulated, make this a certainty."</i> I agree completely.

Mr. Fix
Dec 8, 2012 - 8:36pm

RE Indenture

Xty is right. What do you think will happen?

Indenture
Dec 8, 2012 - 8:39pm

Central Banks

DrkPurpleHaze - "Unless the CB's want gold, and only gold to be the sole monetary vehicle then they'll need to price just gold that much higher. Including silver imho would give them more metal (and future wiggle room) to create more capital and wealth." So why do the Central Banks need silver also? Why would they need more wiggle room if the price of gold, like you said, could just be raised to fill the gap silver left behind?

Mr. Fix
Dec 8, 2012 - 8:48pm

RE Indenture

I meant to say silver or gold, not instead of gold.

Anything of value, means just that. Those that produce oil will continue to sell it, for whatever they think is valuable. Since silver has value, it would be foolish to ignore that it can be used as collateral, or as payment.
Bobbejaan Indenture
Dec 8, 2012 - 8:50pm

@ Indenture .... Purchasing Oil

Quote:
But companies buying oil is paramount to the current existence of humans on this planet and no matter what we think will happen to the money system I'm pretty sure the oil will flow. Oil must flow so how is it paid for? If credit is backed by 100% assets then how is the transaction made? Perhaps we can't see the future but we can make very clear assumptions as to why certain things will pass and I am curious how oil will be purchased in a hard money environment. Anyone? Please?

One possible way is effectively a "gold-for-oil barter system" similar to what has evolved recently between Iran & Turkey due to the USA & SWIFT actions in trying to cut off Iranian international trade.

Such as described here :-

https://edition.cnn.com/2012/11/29/world/meast/turkey-iran-gold-for-oil/...

&

https://www.payvand.com/news/12/nov/1255.html

.

.

There is ALWAYS more than one way to skin a cat .... and without having to fall foul of many of the "Freegolders" fallacies.

Both Gold AND Oil are effectively "hard currencies" of their own, and it isn't overly difficult for mutually-interested parties to work out a mutually equitable/beneficial "currency exchange rate" .... Gold & silver merely tends to have a "longer shelf life" than barrels of oil in terms of ease of storage & long term storage & savings.

¤
Dec 8, 2012 - 8:53pm

The Battle of the Money Bags and Strong Boxes


Битва кошельков и сундуков
The Battle of the Money Bags and Strong Boxes.

Pieter Bruegel the Elder ~ c.1570

Mr. Fix
Dec 8, 2012 - 8:55pm

As good as gold. @ Indenture

Prior to 1971, as you obviously know, the dollar was backed by gold,

and on the international market, was considered “as good as gold”.

The Chinese are currently stockpiling of massive amounts of gold.

many suspect that they are attempting to create a new world reserve currency.

This currency would be backed by gold, and because of that, it may be accepted as

the new gold standard.

If the Chinese renminbi was “as good as gold,”

then it is entirely plausible that it would be, the new currency for exchange on international markets.

Hence, Oil would be traded in renminbi.

This is only one plausible scenario.

There are of course many others as we have discussed.

Since I have not stated anything that you do not already know,

I would be quite interested to know how you think it will all shake out.

philipat
Dec 8, 2012 - 9:03pm

Physical Shortages

The reports of physical shortages in Ag in particular seem to be getting more frequent by the week. If indeed the longs are now concentrated in strong hands, and given that major specs (And Hedge Funds) have good sources of information regarding physical supplies, the chances of these same hands standing for delivery would seem to be quite good, would they not??

Mr. Fix
Dec 8, 2012 - 9:05pm

@ philipat

Yes, the chances that the strong hands will be standing for delivery are quite good.

However, the odds of them actually getting any, are not so good.

philipat
Dec 8, 2012 - 9:07pm

@Mr Fix

Agreed. But either way the price movements might be quite interesting?

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