Here They Come Again

Wed, Feb 27, 2013 - 3:51pm

Having covered a massive amount of shorts on Monday and Tuesday, the HFTs and momos reasserted themselves today and pounded the metals back down. Now the question is, what happens next?

Chew on this for a moment...It seems nearly everyone was excited by the CoT setup this week. The latest report, released last Friday at 3:30 EST, showed an exorbitant buildup of spec shorts and left nearly everyone excited about an impending short squeeze. Well, now you know one of the reason why the report is held for 72 hours before release. The squeeze began late Friday on the Globex, it carried over into Monday and then ran it's course (at least for now) yesterday.

Over the two trading days of Monday and Tuesday, total open interest in gold fell by nearly 12,500 contracts. This while price was rallying almost $43. There's your short squeeze. Similarly, the total silver OI fell by 11,400 contracts as price rallied 80¢. I mentioned yesterday that those new shorts still remaining would likely be left with no other option than to "double-down" and I'm convinced that that's what we saw today.

After being allowed to open higher, gold was pressured all day on the Comex. As mentioned above, the question now becomes: What happens next?

Will the late-to-the-party momos, who just got burned late last week into this week for anywhere from a $20-$40 loss, be willing to give it another try? IF they do, gold will likely fall back to at least $1585 or even $1570. However, if they choose not to be re-fleeced, gold will bounce from the $1590-95 area and begin to make another move toward the crititcal $1625 level. The action tomorrow and Friday will be your tell.

Not surprisingly, given that the silver shorts were squeezed just like the gold shorts, the silver chart is in a similar position. I'd like to see it hold it's little, mini-trend from the lows of last Wednesday. It should and when it does, the main battle will still be for $29.25, initially, and then $30.20.

Just two more things before I call it a day...

This week's CoT is going to be fascinating, too. For the reporting week, gold was up $10 but OI fell by 13,500. And silver was down 17¢ while its OI fell by 9,700. The question that I hope to get an answer to is: Who was buying (covering) and who was on the other side of the trade selling? Did the silver commercial long position finally drop an enormous amount? Probably. But what if it doesn't? What if all the swapping was within the spec arena and there is little change within the commercial space? We'll see. Unfortunately, the CFTC is going to make us wait another 48 hours to find out.

And this video is fun. I think that Santelli is a closet Turdite and he confirms my suspicions again today with a few jabs at the charade that is the GLD. It still amazes me whenever I hear this stuff on CNBS!

If you haven't yet, please be sure to listen to the podcast with Sandeep Jaitly that I posted this morning. It's highly informative and it will serve as good background the discussion with Andy that I'll be posting tomorrow. Have a great overnight!


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Key Economic Events Week of 6/27

6/27 8:30 ET Durable Goods
6/27 1:25 ET Jul22 Silver option expiry
6/27 10:00 ET Pending home sales
6/28 10:00 ET Consumer Confidence
6/28 10:00 ET Richmond Fed
6/28 12:30 ET Goon Daly
6/29 8:30 ET Q1 GDP final guess
6/29 9:00 ET Chief Goon Powell
6/29 11:30 ET Goon Mester
6/29 1:00 ET Goon Bullard
6/29 1:25 ET Jul22 Silver off board
6/30 8:30 ET PCE and Core PCE
6/30 8:30 ET Pers Inc and Cons Spend
6/30 9:45 ET Chicago PMI
7/1 9:45 ET S&P Manu PMI
7/1 10:00 ET ISM Manu PMI

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