Bullish COT data sets stage for higher gold

Each Friday, we put Commitment of Traders (COT) data under the microscope.  Specifically gold.  Most weeks it’s pretty ho-hum.  This past week -- Friday May 4, 2013 --- anything bu

We did a double take:

Net commercial shorts minus net commercial longs was in five figures.  In the raw data, http://www.cftc.gov/marketreports/commitmentsoftraders/index.htm, it’s listed as Comm_Positions_Short_All minus Comm_Positions_Long_All.  “Comm” stands for commercials, i.e. producers, the ABXs, GGs, NEMs, et al.

Gold price	COT report date	Comm_Positions_Short_All minus Comm_Positions_Long_All
1470.70	5/3/13	95,563
1471.50	4/26/13	104,388
1405.50	4/19/13	141,929
1487.70	4/12/13	143,802
1578.30	4/5/13	142,522
1598.25	3/29/13	158,473
1607.90	3/22/13	162,364
1592.90	3/15/13	142,121
1579.20	3/8/13	133,798
1576.30	3/1/13	137,620
1581.50	2/22/13	132,082
1607.00	2/15/13	160,653
1669.00	2/8/13	174,607
1668.10	2/1/13	167,097
1659.30	1/25/13	195,950
1685.00	1/18/13	185,113
1663.30	1/11/13	178,472
1656.80	1/4/13	188,659
1657.50	12/28/12	187,664
1655.50	12/21/12	202,134
1696.20	12/14/12	214,880
1704.50	12/7/12	217,596
1715.00	11/30/12	252,047
1752.00	11/23/12	236,064
1712.90	11/16/12	224,795
1730.80	11/9/12	207,742
1676.90	11/2/12	222,764
1712.10	10/26/12	232,665
1720.50	10/19/12	247,383
1755.80	10/12/12	266,988
1778.40	10/5/12	269,270

How long had that been?  We went looking and found it:  Dec. 12, 2008 (See below).  Four and one-half years ago.

1161.40	12/4/09	308,231
1166.50	11/27/09	306,104
1150.10	11/20/09	281,546
1118.50	11/13/09	282,784
1097.00	11/6/09	283,852
1046.10	10/30/09	283,479
1054.70	10/23/09	297,493
1052.90	10/16/09	295,926
1048.00	10/9/09	281,864
1004.00	10/2/09	275,234
990.70	9/25/09	287,610
1006.00	9/18/09	284,661
1005.70	9/11/09	270,797
994.10	9/4/09	216,708
956.10	8/28/09	211,342
953.90	8/21/09	204,545
953.60	8/14/09	222,905
956.00	8/7/09	228,193
953.20	7/31/09	202,521
952.30	7/24/09	204,226
935.70	7/17/09	182,287
911.70	7/10/09	191,307
932.50	7/3/09	197,818
938.60	6/26/09	194,430
933.70	6/19/09	207,368
938.80	6/12/09	225,047
954.30	6/5/09	226,521
979.10	5/29/09	208,136
956.70	5/22/09	183,065
931.20	5/15/09	171,180
914.50	5/8/09	160,445
885.30	5/1/09	153,419
912.70	4/24/09	149,608
866.80	4/17/09	153,509
880.00	4/10/09	153,223
894.30	4/3/09	181,926
923.00	3/27/09	181,289
952.60	3/20/09	175,684
928.10	3/13/09	172,851
938.40	3/6/09	188,401
942.20	2/27/09	190,936
994.70	2/20/09	196,360
941.10	2/13/09	188,712
911.00	2/6/09	177,589
926.10	1/30/09	158,376
895.20	1/23/09	138,931
841.00	1/16/09	141,563
853.60	1/9/09	149,482
876.80	1/2/09	142,773
877.80	12/26/08	132,797
837.50	12/19/08	123,111
817.00	12/12/08	94,872

Gold was $817 on that fateful day.    One year later, it was $1161.  A stunning 42% gain.

What is a 42% boost on $1470? 

$2088.

What is the significance of “net commercial shorts”?  This is the hedge position of the ABXs, GGs, NEMs, et al.  These are the producers, typically the ones who “know” when to sell short, when to back off and wait for higher prices.   They are not always right, and these numbers are not infalliable, but usually doesn’t pay to bet against them.

So this Friday’s less than 100,000 print.

Could it be telling us that May, 2014 gold may be selling for $2088?  Or thereabouts?  Could the recent takedown in gold prices be the massive head fake so many have written about?

Stay tuned.

10 reasons gold will shine again

Featured on seekingalpha.com and finance.yahoo.com (search GLD).

Give a look to our book as well (Amazon):

Ambush at the COMEX Corral

Have read a number of explanations as to the smackdown in precious metals over recent days. This is one of the most comprehensive:

Ambush at the COMEX Corral

Gold ready to move on down the line?

Option Wizard® Trading Method is saying gold may be ready to move:

8.80	86.21%	(28,853)	1668.10	2/1/13	167,097
-25.70	85.22%	10,837	1659.30	1/25/13	195,950
21.70	88.09%	6,641	1685.00	1/18/13	185,113
6.50	85.67%	(10,187)	1663.30	1/11/13	178,472
-0.70	84.95%	995	1656.80	1/4/13	188,659
2.00	85.02%	(14,470)	1657.50	12/28/12	187,664
-40.70	84.80%	(12,746)	1655.50	12/21/12	202,134
-8.30	89.34%	(2,716)	1696.20	12/14/12	214,880
-10.50	90.27%	(34,451)	1704.50	12/7/12	217,596
-37.00	91.44%	15,983	1715.00	11/30/12	252,047
39.10	95.57%	11,269	1752.00	11/23/12	236,064
-17.90	91.21%	17,053	1712.90	11/16/12	224,795
53.90	93.21%	(15,022)	1730.80	11/9/12	207,742
-35.20	87.19%	(9,901)	1676.90	11/2/12	222,764
-8.40	91.12%	(14,718)	1712.10	10/26/12	232,665
-35.30	92.06%	(19,605)	1720.50	10/19/12	247,383
-22.60	96.00%	(2,282)	1755.80	10/12/12	266,988
7.80	98.52%	6,915	1778.40	10/5/12	269,270
-3.20	97.65%	12,722	1770.60	9/28/12	262,355
2.80	98.01%	12,542	1773.80	9/21/12	249,633
34.50	97.69%	17,705	1771.00	9/14/12	237,091
44.80	93.84%	15,762	1736.50	9/7/12	219,386
21.40	88.84%	32,402	1691.70	8/31/12	203,624
54.50	86.45%	27,282	1670.30	8/24/12	171,222

Most oversold since Aug. 2012. Whereupon the yellow metal jumped $100 in weeks following. Pundits are calling for more than $100 here. (Read Bill Gross' latest essay). Are we near lift-off?

Gold: $2013 in 2013

Tis the season to make forecasts.

Here's ours.  Since the price movement in the precious yellow metal has pretty much lulled everyone to sleep in 2012, look for the unexpected in 2013.

A 21% gain to $2013 -- and beyond.

We'll revisit this page, Lord willing, in exactly 12 months, and see how profound this oracle turns out to be --- or not.

In any case, we wish all our readers the very best, peace, health and prosperity in 2013.

NBR offers opportunity for the patient

 

In our book, Option Wizard® Trading Method, we propose the following:  put fundamentals first to give yourself an edge, then follow with technical analysis for timing purposes, then options analysis.  This sort of approach can do quite well with a mildly undulating stock such as NBR.

With a book value of $20+, NBR trades in a band from about 13 to 16, plus or minus -- thus giving the investor the "margin of safety" that Graham-Dodd-Buffett wisely appropriated for themselves.  With a program of selling puts when the stock declines, even taking delivery, then selling calls as the stock rises, one can do quite well.  How "well" is "well?"  It's not overly difficult to generate 20% or so per year returns, at this rate.  That's 20x what the money markets are paying, without taking an outrageous amount of risk.

Can you lose?  Yes, NBR, like every other stock out there can plummet to levels never dreamed possible.  Could it increase to book value or beyond?  Yes.   Appears one big buyer thinks so, and has put his or her money behind the idea, the real show of faith.

A few days ago, CNBC ran this item (source:  OptionMonster):

Nabors Industries has been holding long-term lows, and one large buyer is positioning for a gradual rebound.

OptionMonster's trade scanners detected the purchase of 5,000 January 2015 20 calls for $1.70 yesterday. The volume dwarfed the strike's open interest of just 53 contracts at the beginning of the day, so this is clearly a new position.

The calls lock in a $20 entry price in the stock in the next 25 months. Those options will increase in value if the shares rise, potentially resulting in significant leverage relative to the underlying shares.

Nabors shares rose 2.9 percent to $14.20 yesterday and has lost 18 percent of its value so far in 2012. The energy driller has managed to stay above its lows from earlier in the year, which could be leading some traders to expect a rally in the belief that it's at support.

Yesterday's call buying dominated option activity the name, which typically sees volume of fewer than 1,200 contracts per session. Calls outnumbered puts by 5 to 1.

—By CNBC Contributor David Russell

That's three years hence for six or so points of move.  Meanwhile, a patient and agnostic posture of selling both puts and calls, either sequentially with overbought/oversold readings, or together, and acquiring stock at lower prices, selling (if called), at higher, may prove profitable.

Many options strategists prefer this approach to "delta-neutral" strategies which are ever-so-appealing on paper and ever-so-difficult to realize profits with in the real world.