In the hope of inspiring Comex speculator liquidation, The Banks
are once again targeting gold's 200-day moving average.
Twice previously this year, The Banks have managed to maneuver
the gold price down and through the 200-day moving average. On these prior
occasions, the speculator selling that followed allowed The Banks to buy back
and cover large amounts of their perennial short contracts.
On Friday, April 28 of this year, total Comex gold open interest
was at 470,787 contracts and price was clinging to support at the 200-day. The
next market day of Monday, May 1 saw Comex gold smashed for $15. By the time
the selling subsided on Tuesday, May 9, price had fallen nearly $60 and total Comex
gold open interest had contracted by over 37,000 contracts.
What had occurred? When price fell and closed below the 200-day
on May 1, tremendous amounts of speculator long liquidation ensued. It was this
selling that drove price down. Taking the other side of these trades were The
Banks, which used the Spec selling to buy back and cover existing short
positions.
Evidence of this is seen in the Commitment of Traders report from
the survey week that ended on Tuesday, May 9. That report saw the Large Specs
in gold decrease their NET long position by 40,200 contracts while the
Commercials (Banks) decreased their NET short position by 39,500 contracts.
Price then rallied from $1225 on May 9 to $1305 on June 6 before
beginning another pullback.
On Friday, June 23, total Comex gold open interest was at 449,164
contracts and price was once again clinging to support at the 200-day. The next
market day of June 26 saw another one of those infamous "flash
crashes" that led to a temporary breach of the 200-day but this line
wasn't completely breached on a closing basis until Friday, June 30. Price then
fell nearly $40 in five days before bottoming at $1215 on Monday, July 10.
From June 23 through July 10, price fell over $50 and the 200-day
moving average yet, this time, total interest actually rose by over 30,000
contracts. Again, what had occurred?
This selloff not only saw Spec long liquidation, it also saw a
significant amount of new Spec shorting! Evidence of this is again found in the
CoT reports of the combined two weeks of June 28 through July 11. Those reports
showed the Large Specs in gold decrease their NET long position by 71,000
contracts while the Commercials decreased their NET short position by 76,000
contracts.
All of this is summarized on the chart below:
So now here we are again. Just as in April and June, price has
fallen back and is finding support above the 200-day. Also just as in April and
June, the Large Speculators have thus far remained steadfast with their NET
position mostly unchanged over the last four CoT reports. With history as your
guide, what level do you think The Banks will target next?
Of course it's the 200-day moving average, currently found near
$1266! There can be little doubt that The Banks hope to soon break this level
again. In doing so, they hope to inspire enough Spec liquidation that open
interest will fall back under 500,000 contracts from the current 529,000. This
30,000+ long contract liquidation by The Specs would allow The Banks to cover
30,000+ shorts...all of this before the next rally sets in.
And how far might price fall if The Banks can pull this off?
Well, just as in May and July, not too far really. Note that those two prior
riggings only moved price about $35-$45 below the 200-day before it turned and
rallied. A similar drop now would target the $1230 area but I don't think it
would make it quite that far. The chart below shows considerable, long-term
support in the area near $1240, instead.
None of this changes, of course, our 2017 forecast made back in
January. Back then, we speculated that price would advance through 2017 in a
three-steps-forward, two-steps-back sort of pattern with the year's highest
prices coming in the fourth quarter. Let's just wait now to see if The Banks are
able to cover more of their short position before this final leg of the 2017
rally begins.
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Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities. Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.
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The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.
