As the Specs in paper gold rapidly exit the "market" and this current rinse cycle ends, from where might gold find a turnaround and rally? Two weeks ago, we projected that the area between $1220 and $1235 would be about right. Is that still the case?
Frankly, this is quite remarkable. We had been discussing this for weeks and even dedicated full posts here:
And now, here we are.
To recap, Comex gold began 2015 at $1184 and with total open interest of 371,646 contracts. The New Year Rally began on January 2 and rolled along for three weeks, reaching an intra-day high of $1309 in January 22. Total open interest also peaked that day at 450,985. So, over just three weeks, gold rose by $125 or 10.5% while total open interest rose by 79,339 contracts or 21.3%.
And as you know, the source of all of this new paper gold was The Bullion Banks, which were eager to meet every Spec bid with the motive of blunting momentum and, eventually, capping the rally. Over the same three week period, these Banks increased their GROSS short position by nearly 85,000 contracts, from 238,952 to 323,486. That's 8.5MM ounces of paper metal, more than the entire Comex gold vaulting system and the equivalent of 265 metric tonnes. From thin air and/or whole cloth.
The Banks simply were not going to allow this to continue so it became inevitable that price would "stall and fall". First, price was capped at the psychological resistance level of $1300. It was then pushed back below the always-important $1280 level and then it was held just above the technically-important 200-day moving average until BLSBS Friday.
By managing price back down in stages, The Banks have expertly applied another classic "wash, rinse and repeat" cycle to the Specs and we can clearly see the results in the latest open interest numbers.
We just received the final open interest numbers from yesterday and the results are conclusive. Even though price rallied back a few dollars over the session, open interest on the Comex declined again, falling 6,663 contracts. This brings the total Comex gold open interest back to 394,447 contracts, now up just 22,801 contract YTD and down over 56,000 contracts from the January 22 peak.
This also means Mission Accomplished for The Banks. Not only did they once again cap and reverse a nascent rally in paper gold, they also profited quite handsomely as all of those naked shorts they applied up around $1280 and $1300 have now been covered at a handsome profit. This means fat bonus pools along with lots of vodka and hookers.
It's sad. It's sickening. And its what passes for a "free and fair" gold market here in the land of oligarchs and plutocrats.
Understanding all of this allows us clear vision as to what might happen next. Or course, The Specs could now flow into the short side but I don't think so. Global events and currency wars would seem to inspire the Specs to maintain a bullish outlook for paper gold over the intermediate term. Therefore, we should expect a turnaround soon as these very same Specs come rushing back into paper metal, unaffected by the prospect of another wash/rinse/repeat cycle to come.
Back on January 29, we wrote this:
"...we must expect a final drop toward $1235 and maybe even $1220. I know that sounds terrible but think about it...I am 100% confident in the UP trend of this year and resumption of the bull market. A drop to $1220-1235 would be a remarkably solid buying opportunity for both physical buyers and paper traders."
With price reaching a low of $1228 on Friday and $1232 this morning, we are very likely seeing the bottom of this latest cycle. The charts below confirm this thinking.
First, on the reverse H&S we've been watching on the daily chart, price appears to have indeed found a floor at the "arm pit" line of $1230. So far, so good:
As we widen out to a full, one year chart, you can see the importance of longer-term support near the $1240 area, too:
Now, could I be wrong in the short-term and could The Banks look to run all the rest of the 2015 Specs back out by rigging price even lower? Of course. IF they do, I will be stunned, flabbergasted and shocked if they can get price back much below $1220 and the 100-day moving average that is near there:
More likely, given ALL that's going on in the world (ZIRP, ECBQE, Ukraine, Greece), price reverses from here. This is made even more likely by the precipitous drop in open interest discussed above. The key level to watch will be the 200-day moving average at $1255 and the key horizontal resistance found near there. A close or two back above that level and you can feel very confident that this current w/r/r cycle is complete and that the decks have been cleared for gold to resume its 2015 UPtrend:
So, rejoice and be glad. You are NOT just another dumb, momo-chasing Spec algo getting repeatedly taken to the cleaners by The Bullion Banks. Instead, you are alert and aware. Keen to what is really happening and using this knowledge to your advantage as you accumulate physical metal ahead of the eventual breakdown of this current system and end of The Great Keynesian Experiment.