"Gradual rally into year end", along with "sell the rumor, buy the news" regarding the Fed rate hike, has been our mantra since we saw that November price smash coming back in October. So far, its sure seems like it's all coming along as planned.
Metals prices are UP again today and gold is now HIGHER than it was when the FOMC rate decision was announced back on Wednesday. Uh-oh. This has to be making some of the big Spec shorts more than a little nervous.
Perhaps more importantly, how about this?
And what if we looked at it this way?
So, $1080 and $1090 become pretty important this week. It's certainly no coincidence, therefore, that the high of the day (so far) in the Feb16 gold is $1079.80. If we can get through there and head off to tackle $1105 before the end of the year, our plan of a decent January rally will really begin to take shape.
And it's not just gold. Silver, too, is now ABOVE where it was prior to the FOMC fedlines:
So, think of this from the perspective of a Spec short...at least those shorts that are actually held by thinking, logical human beings. You've followed gold all the way down from $1180 in late October, in a plunge that was "caused" by the expectations that The Fed was finally poised to raise rates. On October 27, one day before the October FOMC that The Banks used to start the ball rolling, a CoT survey was taken and it looked like this:
Large Spec: Long 225,985. Short 68,551. NET LONG 157,444 contracts
Small Spec: NET LONG 8,404 contracts
Gold Commercials (Cartel): Long 138,770. Short 304,618. NET SHORT 165,848 contracts
Compare those numbers to the CoT from last Tuesday, one day before the December FOMC that finally produced the first rate hike in nine years and the one which had been promised almost since the beginning of QE3 in October of 2012:
Large Spec: Long 155,934. Short 142,278. NET LONG 13,656 contracts
Small Spec: NET SHORT 5,393 contracts
Gold Commercials (Cartel): Long 151,015. Short 159,278. NET SHORT 8,263 contracts
If over the past six weeks...
You're a Spec short (large or small)...
At what point do you begin to get nervous about your position?
The Fed has hiked rates just as you were told they would. But you were also told that this would cause gold prices to fall even further. But they haven't. Instead, after falling initially, they've completely reversed and are how HIGHER than they were before the news back on Wednesday. "Oh crap", you say, and you begin to cover. Not so much at first as you're hoping that this is just a simple dead cat bounce. But then gold move UP through $1090. Does this make you even more nervous? How about $1105 and the 50-day moving average? Would bursting through there cause you to not only buy to cover BUT also buy to move long?
This is how it works, my friend. And this is why I've repeatedly told you to expect a gradual rally into year end and then a strong rally in January. And this is why I bought that small collection of call options for expiration in late January.
And what is THE KEY POINT in driving this "unexpected reversal" in gold? Go back and look at that CoT data. While price was falling from $1180 to $1060, the freaking Commercials covered an incredible 145,340 shorts. That's 14,534,000 ounces of paper gold obligations that they were able to buy back. If you figure that, on average, they made at least $70/ounce on the "trade", that's just north of one billion freaking dollars they made by shorting and capping in October and then covering the contracts back up in November/December. Yes, The Bullion Banks work at the behest of The Central Banks in managing and maintaining the gold price. But that's just in The Big Picture. For the day-to-day, they make A LOT of freaking money in the process of doing it, too. It's good work if you can get it and The Banks will do everything they can to protect this CASH COW.
Again, this is why we hope/pray/plan for the day when this entire fraudulent fractional reserve bullion bank pricing scheme comes crashing down. Besides the obvious economic disparities caused by the manipulation, how many untold billions of dollars have been stolen from "regular" investors and traders over the years through this criminal control and manipulation of the paper markets?
What will likely happen now and in January? All of the Spec short-covering and buying will be absorbed by The Banks through brand new short-selling. The Spec NET LONG position will expand as will The Commercial NET SHORT position. Will the "market" begin to break this time, with a higher high and an UPward resolution versus The Nemesis Line? I don't know. We'll have to wait for January and February to find out. In the meantime, however, I am completely comfortable with the forecast made back in October, well before this current selloff began...That, after bottoming in early December, gold (and silver) will gradually rally into year end and then accelerate this move in January. What happens next is anyone's guess.