Sunday, October 2, 2011

Next for gold

As little as four years ago, there was no financial hand-wringing surrounding Europe. World financial angst was concentrated on the U.S. dollar. Remember when supermodels demanded to be paid not in dollars, but in Euros? Seems like prehistory now....

Now it seems the whole world is watching the Euro's weakest link, Greece. When, not if, it defaults, will it take down Euro banks, governments....? When they fall into the Atlantic, will the ensuing tsunami submerge our own shores...?

Which financial phenomenon will play the role of Grim Financial Reaper, Deflation or Inflation? Or will we continue to soldier on, wobble on, in the uneasy equilibrium beyond these two cosmic forces?

And what of gold?

Of the long term, we confess we don't know, save for the famous words of one noted economist, that in the long term, we'll all dead (fairly obvious, but J. M. Keynes surely got a lot of quotes out of it.)

Short term? OPTION WIZARD TRADING METHOD GOLD is signaling that a short term bottom might be in via a precipitous drop to below 200,000 contracts in commercial net short positions as follows.

Gold Change Date COMMERCIALS NET SHORT
1624.80 -22.20 9/30/11 166,683
1647.00 -162.60 9/23/11 197,628
1809.60 -49.80 9/16/11 210,468
1859.40 -22.50 9/9/11 227,714
1881.90 68.20 9/2/11 217,355
1813.70 -32.70 8/26/11 230,436
1846.40 101.20 8/19/11 248,847
1745.20 86.90 8/12/11 249,206
1658.30 33.40 8/5/11 287,634
1624.90 22.50 7/29/11 282,973
1602.40 8.30 7/22/11 263,814
1594.10 50.10 7/15/11 244,249
1544.00 57.70 7/8/11 202,002
1486.30 -13.30 7/1/11 208,755
1499.60 -37.90 6/24/11 251,247
1537.50 5.00 6/17/11 237,429
1532.50 -9.80 6/10/11 247,684
1542.30 6.80 6/3/11 240,508
1535.50 22.00 5/27/11 217,237
1513.50 19.80 5/20/11 206,949
1493.70 1.00 5/13/11 221,581
1492.70 -73.00 5/6/11 240,102
1565.70 60.70 4/29/11 248,994
1505.00 18.60 4/22/11 266,548


It may be instructive to look at what happened the last time commercial net short's declined to this level.

Gold Change Date COMMERCIALS NET SHORT
1486.40 11.50 4/15/11 253,688
1474.90 46.30 4/8/11 258,665
1428.60 -1.60 4/1/11 240,769
1430.20 10.50 3/25/11 224,799
1419.70 0.20 3/18/11 220,154
1419.50 -10.00 3/11/11 247,464
1429.50 20.90 3/4/11 250,596
1408.60 19.50 2/25/11 231,806
1389.10 33.20 2/18/11 218,626
1355.90 7.00 2/11/11 209,911
1348.90 11.00 2/4/11 193,197
1337.90 -4.00 1/28/11 197,483

About $150 to the plus for gold, from January to April.

However, having pointed these situations out:

Could gold revisit its recent low? Could it move sideways for an extended time? Yes, and yes. Could it make new low's? Yes, again. With Europe primed and awaiting crisis, anything and everything is possible. But the commercials (producers) tend to have the best handle on the market, and this indicator tends to work over time.

That it doesn't "feel right" after the recent drubbing the shiny metal has taken is perhaps another powerful endorsement. That some of the gold miners turned up or acted firm Friday, when gold itself was struggling, is another positive. Historically, miners have tended to lead the actual metal....