Commitments of Gold Futures Traders reveal large speculators (hedge funds and money manager) decreasing their gold long positions (-5.5%) and increasing their short positions by +5.8%. Commercial gold traders were much more active and slashed their long positions by 18% and reduced their short positions by 10%.
This resulted in net commitments of futures gold traders to the lowest reading in 10 weeks. The open interest (green line) is sinking again signaling disinterest in the yellow metals has started. Finally these positions go in the right direction after being way too high for almost a year. Some of the large dealers on the Comex advised they are reducing their trading in the New York gold futures as they had
lately heavy losses due to the volatility in the market (attachment 1).
We guess that is the price to pay being overly short in a very volatile gold bull market.
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The KITCO Gold Survey indicates Wall Street scaled back their expectations on
the gold price this week (47% bullish versus 35% bearish) after being overly optimistic
last week. Main Street (Retail Investors) remain bullish with 62% (attachment 2).
The Gold Barometers (attachment 3) show the two gold stocks Indices (HUI and XAU)
coming off a very overbought reading of the last two weeks of 100% but are still
overbought (column 2+3). Physical gold is overbought (column 5) and physical silver
is slightly overbought (column 6).
The Gold Miners Bullish Percent Index came down to 68% on a scale of 0 (zero) to 100.
It was around 90% for most of April and early May (attachment 4) indicating a very
overbought level for gold stocks.
The hourly gold spot chart (attachment 5) (1 bar per hour) reveals gold faced a 3-staged
decline last week. The size (volume) in the attacks on the downside leaves little doubt that
it was the Phantom of the Opera hitting the market. The first wave drove spot gold from
US$ 1'744 per ounce to US$ 1'721 (June 2), the second wave from US$ 1'726 to US$ 1'689
(June 3) and the third wave from US$ 1'705 to US$ 1'670 per ounce (June 5). He used
U.S. economic data as a disguise. So called experts and website talkers blamed the decline
on investors departing from safe haven gold to other financial instruments. However, every-
body knows true believer in gold won't get sidetracked and sell the yellow metals just
because of some economic data.
We have been pointing out for some time in our daily e-mails that some technical indicators
signal a divergence between the gold price (attachment 6) and the MACD. This indicator
lost strength already in the middle of April 2020 and really never was able to push solidly
through the red line since. MACD stands for moving average convergence/divergence.
It is designed to reveal changes in the strength, direction, momentum, and duration of a trend.
Chart by Jim Wyckoff on August gold futures.
The daily spot gold chart (attachment 7) shows the gold price arrived at a resistance level.
It indicates also that gold has been trading back an fourth erratically since early April
between US$ 1'760 per ounce and US$ 1'660, a span of US$ 100.
As per last Friday spot gold closed in New York, 4 p.m. at US$ 1'684 per ounce, down
US$ 47 on the week. Looking at the weekly spot gold chart (1 bar per week) we are not at
all worried about the gold price (attachment 8). It shows the massive long term breakout,
on the upside, which we signaled correctly and with noise in June 2019. The uptrend got
sharply interrupted in March 2020 due to COVID-19 but recovered very fast. We expect
high volatility in the gold price to continue mainly driven by political news. The long
term trend is up and any weakness should be used to accumulate gold.
The ARCA Gold Bugs Index, called HUI, closed on Friday at 261.26, down 4.4% on the week
or 8.5% in two weeks. The MACD (lower chart) has been falling since early May as did the
the RSI (Relative Strength) upper chart (attachment 9). On May 19 HUI reached the top of
300.10, hence HUI fell 13% so far.
The GDX (US$ 32.46) (VanEck Vectors Gold Miners ETF), the largest ETF investing in gold
stocks, shows a topping out formation. RSI (upper chart) and MACD (lower chart) are trending
down. While this doesn't mean the index has to go down much lower, it signals it will take
time to form a bottom formation till the next upleg can begin (attachment 10). The Point &
Figure chart (attachment 11) indicates good resistance around the US$ 30 level.
Attachment 12 displays the GLD (largest ETF to invest in physical gold) versus GDX (largest
ETF to invest in gold mining stocks). Since the middle of March 2020 till the middle of May,
GLD underperformed GDX. Gold stocks got badly hammered in the Coronavirus sell-off
but recovered fast and sharp. The graphic suggests, in the short term, physical gold (GLD) is
preferred over gold stocks (GDX).
Net Commitments of Silver Futures Traders indicate a much more active market in silver.
This is shown in the green line (open interest). It refers to the outstanding, or open, position
of traders on a futures or options contract. It is a measure of the money that's flowing into
a market or an asset. Much different than in gold, here the commercial dealers were able
to cover the short positions in the sell-off of silver prices. They have now been aggressively
building new short positions (+22%) over the last four weeks. However, so far the positions
are reasonable. Also the participants in the siver markets have much less to fear of a short
squeeze in the silver market as inventories are abundant (attachment 13).
The silver continuous futures chart (attachment 14) shows silver had a great run from an
overly depressed price in the middle of March due to COVID-19. From around US$ 12 per
ounce to US$ 19 in just short of 3 months is excellent. However, the tide has changed last
week as the MACD (lower chart) crossed the red line and the RSI (Relative Strength) is
declining (upper chart).
The weekly spot silver price chart (attachment 15) indicates the silver price has reached
a level of US$ 18 to US$ 19 per ounce. Since 2017 the silver price has never been able
to penetrate seriously that level on the upside.
The monthly spot silver price (1 bar per month) (attachment 16) reveals spot silver has
not broken out on the upside from a consolidation pattern going back to 2014. To enter
into a long term bull market, spot silver has to cross US$ 20 per ounce and this on a
consistant basis. It is lagging the gold price, which broke out from such a formation in
June 2019 at US$ 1'380 per ounce and is ever since in a bull market.
Silver stocks, or better so called silver stocks, are a different animal. The larger silver
producers have today the majority of their revenues from gold. While they are treated as
silver stocks they trade in line with gold stocks. However, they outperform gold stocks
when silver prices are going up and underperform gold stocks when silver prices are
going down. Hence they are much more volatile.
Attachment 17 displays the daily chart of the largest silver stocks ETF (SIL) Global
X Silver Miners ETF. Talking about volatility, SIL came down in 5 trading days from US$
US$ 37.53 to US$ 33.84 or around 10%. The MACD has just crossed the redline on the
downside (lower chart) and RSI (Relative Strength) is falling.
The Global X Silver Miners ETF (SIL) Point&Figure chart broke out on the upside after
the very severe correction from the middle of March (COVID-19). This is a bullish
formation but needs time to correct and consolidate (attachment 18).
Conclusion: Very volatile trading will continue but it’s unlikely to do much damage to the gold bull market.
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