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Latest COT and short term gold cycle and resistance points
Nov. 18, 2015 by: Boris Mikanikrezai
Money managers are now very bearish toward gold.
ETF investors sold the precious metal for a second straight week, albeit at a slower pace.
Every week, I closely monitor net speculative positions on the COMEX as well as ETF holdings in so far as the historical economic behavior of gold prices suggests that over a short-term horizon (<3 months), gold prices are largely influenced by changes in the forward fundamentals, reflected in changes in net spec length and ETF holdings.
Speculative positioning  
Source: CFTC.
Gold. According to the latest Commitment of Traders provided by the CFTC, money managers, viewed as a relevant proxy for speculators, lowered massively their net long position for the third week in a row as of November 10, while spot gold prices fell by almost 3 percent over the period covered by the data.
The net spec length dropped 50,338 contracts (or 75 percent) to 16,869 from 67,207 between November 3 and November 10, driven by a combination of a build-up of shorts (+25,516 contracts, the second consecutive weekly increase and the biggest one since November 2013) and long liquidation (-24,822 contracts, the third straight weekly decrease).
The net spec length is now down 81 percent year-to-date after being up 33 percent year-to-date as of October 20. This therefore reflects a sharp negative swing in sentiment against gold. The net spec length is below its 2015 average of 51,625 contracts and its long-term average (2006-2015) of 109,742 contracts. That said, it remains above the 2015 low when money managers were net short of 14,633 contracts.
We believe that the outstanding US employment report for October, released November 6, was the trigger of the drastic deterioration in the spec positioning. As a reminder, non-farm payrolls rose 271,000, versus 184,000 expected, and up from 137,000 in September. While the October 27-28 FOMC meeting was the starting point of the negative change in sentiment towards gold as the Fed showed its increasing confidence about a liftoff in December, the release of the jobs report was a further sign that the Fed might be inclined to proceed to a rate hike next month. This was incidentally reflected in changes in the 30-day fed-funds futures, which are presently pricing in a 70-percent probability for a Fed increase at the December FOMC meeting, versus 30 percent before the October FOMC meeting.
Gold. ETF investors sold gold for a second straight week ending November 13, albeit at a slower pace than last week. While I was confused last week by the strong pace of gold ETF selling, I conjectured that some investors preferred to reverse some tactical positions ahead of the US employment report due to its strong source of volatility. I am also willing to admit that renew selling in gold ETF holdings over the past two weeks is due to a weak sentiment in the gold market, reflected in lower prices, which therefore lead some investors to retrench.
Amounting to 1,523 tonnes as of November 13, total gold ETF holdings (tracked by FastMarkets) were down 6 tonnes from last week and 23 tonnes from the start of November. They are therefore on track to record the first monthly outflow in 4 months as investors were net buyers of 12 tonnes of gold in October, 2 tonnes in September and 10 tonnes in August. ETF investors are currently net sellers of 77 tonnes of gold on the year, due to strong outflows between March and July.
From a technical picture, the market is deeply oversold in the near term, as evidenced by the RSI (21) gyrating around the 14 level.
From a fundamental perspective, I believe that money managers have sold gold too aggressively and too quickly so they are likely to lack some "dry powder" to drive spot prices much lower. That said, current sentiment appears to me weak in the sense that despite the resurgence of potential bullish factors such as geopolitical tensions, the gold market has not benefited from safe-haven bids.
As a result, I prefer to await a bit further before taking a constructive stance on gold. As seen in the chart above, I would not be surprised to see GLD fall toward the $100 level, but it would suggest at the same time that money managers have become even more bearish, which would raise the likelihood of a strong short-covering rally.
(end of COT report)
Gold Cycles
The next gold cycle is due Nov 25th (plus or minus 72 hours) so next week looks like the perfect time for a low to establish and for a Thanksgiving Rally attempt. It would be more bullish to get back to blue cycle lows and a low next week would give us just that. As long as we are below that downtrend line under 1100, the overall intermediate term trend remains down.
Gold Very Short Term
Gold has tried to move back above 1072-1075 three times since the 1064 low. So far it has not been successful. Today price is just limp between 1065-1072. We need a close above 1085 to neutralize the downtrend. On the downside, weekly support is 1035-1050 and if we close below 1064, we should expect such to occur. Any time we are below 1072-1075 favor the bears to have control.
In summary, odds favor gold still has downside potential but a strong reversal is coming on a short term move.
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