Bullion Banks Once Again Target Gold"s 200-Day Moving Average

Bullion Banks Once Again Target Gold"s 200-Day Moving Average

Written by Craig Hemke, Sprott Money News 

 

 

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.

 

 

Questions or comments about this article? Leave your thoughts HERE.

 

 

 

 

 

Bullion Banks Once Again Target Gold"s 200-Day Moving Average

Written by Craig Hemke, Sprott Money News 

 

Extremes Are Everywhere

Authored by Lance Roberts via RealInvestmentAdvice.com,

This past weekend, I discussed what appears to be the markets ongoing melt-up toward its inevitable conclusion. Of course, that move is supported by the last of the “holdouts” that finally capitulate and take the plunge back into a market that “can seemingly never go down.” But therein lies the danger. To wit:

“However, it should be noted that despite the ‘hope’ of fiscal support for the markets, longer-term conditions are currently present that have led to rather sharp market reversions in the past.”

“Regardless, the market is currently ignoring such realities as the belief ‘this time is different’ has become overwhelming pervasive.”

The other problem on a short-term basis is the market is pushing very elevated levels currently. As shown below, with RSI (14) now above 70, the market 3-standard deviations above the 50-dma, and the MACD over 13, in both previous cases over the last year a short-term reversal followed.

A similar outcome would not be surprising this time either, so some caution is advised.

Positioning Review

The COT (Commitment Of Traders) data, which is exceptionally important, is the sole source of the actual holdings of the three key commodity-trading groups, namely:

• Commercial Traders: this group consists of traders that use futures contracts for hedging purposes and whose positions exceed the reporting levels of the CFTC. These traders are usually involved with the production and/or processing of the underlying commodity.


• Non-Commercial Traders: this group consists of traders that don’t use futures contracts for hedging and whose positions exceed the CFTC reporting levels. They are typically large traders such as clearinghouses, futures commission merchants, foreign brokers, etc.


• Small Traders: the positions of these traders do not exceed the CFTC reporting levels, and as the name implies, these are usually small traders.

The data we are interested in is the second group of Non-Commercial Traders.

This is the group that speculates on where they believe the market is headed. While you would expect these individuals to be “smarter” than retail investors, we find they are just as subject to human fallacy and “herd mentality” as everyone else.

Therefore, as shown in the series of charts below, we can take a look at their current net positioning (long contracts minus short contracts) to gauge excessive bullishness or bearishness. With the exception of the 10-Year Treasury which I have compared to interest rates, the others have been compared to the S&P 500.

Volatility Extreme

The extreme net-short positioning on the volatility index suggests there will be a rapid unwinding of positions given the right catalyst. As you will note, reversals of net-short VIX positioning has previously resulted in short to intermediate-term declines. With the largest short-positioning in volatility on record, the rush to unwind that positioning could lead to a much sharper pickup in volatility than most investors can currently imagine.

Crude Oil Extreme

The recent attempt by crude oil to get back to $50/bbl coincided with a “mad rush” by traders to be long the commodity. For investors, it is also worth noting that crude oil positioning is also highly correlated to overall movements of the S&P 500 index. With crude traders currently extremely “long,” a reversal will likely coincide with both a reversal in the S&P 500 and oil prices being pushed back towards $40/bbl. 

While oil prices could certainly fall below $40/bbl for a variety of reasons, the recent bottoming of oil prices around that level will provide some support. Given the extreme long positioning on oil, a reversion of that trade will likely coincide with a “risk off” move in the energy sector specifically. If you are overweighted energy currently, the data suggests a rebalancing of the risk is likely advisable.

US Dollar Extreme

Recent weakness in the dollar has been used as a rallying call for the bulls. However, a reversal of US Dollar positioning has been extremely sharp and has led to a net-short position.

As shown above, and below, such negative net-short positions have generally marked both a short to intermediate-term low for the dollar as well as struggles for the S&P 500 as a stronger dollar begins to weigh on exports and earnings estimates.

Interest Rate Extreme

One of the biggest conundrums for the financial market “experts” is why interest rates fail to rise. Apparently, traders in the bond market failed to get the “memo.” With the net positioning in bonds at some of the highest levels since the financial crisis, there is little reason to believe the “bond bull” market is over. Look for a reversal of the current positioning to push bond yields lower over the next few months.

It is also worth watching the net-short positioning the Euro-dollar as well which has also begun to reverse in recent weeks. Historically, the reversal of the net-short to net-long positioning on the Eurodollar has often been reflected in struggling financial markets.

Smart Vs. Dumb Money Extreme

While we have been looking at solely the large non-commercial traders above, they are not the only ones playing in the future markets. We can also dig down into the overall net exposure of retail investors (considered the “dumb money”) versus that of the major institutional players (“smart money”)

The first chart below shows the 3-month moving average of both smart and dumb-money players as compared to the S&P 500 index. With dumb-money running close to the highest levels on record, it has generally led to outcomes that have not been favorable in the short-term.

We can simplify the index above by taking the net-difference between the two measures. Not surprisingly, the message remains the same. With the confidence of retail investors running near historic peaks, outcomes have been less favorable.

None of this analysis suggests that a market “crash” is about to occur tomorrow. However, with complacency high, and investors scrambling to find excuses why markets can only go higher, suggests that extremes in positioning have likely been reached. 

This was a point made by Macquarie’s Viktor Shvetz, the bank’s head of global equity strategy, yesterday:

“Investors seem to be residing in a world without any notable perceived risks. It is an extraordinary and unprecedented situation, particularly given unresolved issues of over-leveraging and associated over-capacity as well as profound disruption of business and economic models, which are not just depressing inflation but also causing extreme political and electoral outcomes while feeding Maslowian-type disappointments across labor markets.

What can explain such lack of concern regarding potential risks?

In our view, the only answer is one of investors’ perception that, as we discussed in our preview of 2H’17, ‘slaves must remain slaves’ and hence, neither Central Banks nor other public institutions can afford to step aside but need to continue to guarantee asset price inflation. In its turn, this can only be achieved by ensuring that volatilities are contained (as they are the deadliest enemy of an ongoing leveraging) and liquidity is expanding at a sufficient pace to accommodate nominal demand.

We remain constructive on financial assets (both equities and bonds), not because we expect a return to self-sustaining private sector-led recovery and growth but because we believe that an ongoing financialization is the only politically and socially acceptable answer.

In our view, therefore, the greatest risk is one of policy.”

The complete disregard for “risk” has never worked out well for investors in the past and is unlikely to be different this time either. But remember, in the short-term, the markets can remain irrational longer than logic would predict and they always “feel” their best at the peak.

Speculators Sour On Gold And Silver

Authored by John Rubino via DollarCollapse.com,

The stars — in the form of smart and dumb money futures contract positions — have once again lined up favorably for precious metals. Here are those positions for gold and silver as of Tuesday the 4th. Notice that speculators (the dumb money) got a lot less optimistic — that is, less long and more short — while the commercials (the smart money) got much less pessimistic.

The closer each group gets to neutral, where their longs and shorts are about equal, the greater the likelihood that metals prices will rise in the subsequent six or so months.

And here’s the same data for silver presented in graphical form. The top bars are speculator longs and the bottom are commercial shorts. When they approach the zero line that’s bullish.

So here we are once again, at the tail end of a grindingly-protracted precious metals correction that has led a lot of people to give up altogether and sell their mining stocks. The next few months should be much better, especially for holders of the junior miners that were caught in the GDXJ downdraft.

Playing this indicator - known as the Commitment of Traders Report, or COT - is of course just a way to pass the time while the real underlying forces affecting precious metals work themselves out.

Those forces - rapidly accumulating debts which leave central banks no choice but to inflate away their currencies - are still accelerating in most places, and the inevitability of mass-devaluation will become clear when the central banks now talking about “interest rate normalization” and “balance sheet reduction” are forced to admit that those things are impossible, and all that’s left is debt monetization as far as the eye can see.

On that day it won’t matter what futures traders - or junior miner ETFs - are doing. The physical precious metals bid will go infinite — that is, big players holding useless cash will buy up all the gold and silver that’s available, at pretty much any price that’s demanded.

[ZH: Additionally, Bloomberg"s MarketLive blog pointed out this interesting relationship. As the volume of negative-yielding debt in the world rises, so it appears demand for "paper" gold picks up and vice versa...]

Treasuries Besieged by 'Idiot Money': Record Shorts in Treasuries Paint an Ominous Picture for Bond Bears

As some of you might recall, in December of 2015, I went long treasuries, due to my belief that negative interest rates would wreak havoc across the investment landscape -- bringing with it a deflationary vortex that would consume all whole -- especially equity holders. For the better part of 2016, this was the single best trade to be in -- and I had it before anyone deemed it to be fashionable.

Then the elections came and a gigantic Trump induced squeeze commenced -- helping rout bonds and buoy equities in record fashion. Looking back on that rally, it was a fucking month -- literally nothing in the big scheme of things. Should bonds rally again, recapturing some of its former glory, no one will remember the faux inflation days of November-January -- post Hillary annihilation.

Looking at the bond trade, it"s ripe for a reversion to the mean. After all, the most reprehensible people around, pavement apes and the like, are short bonds. These are the "Fast Money" people -- the same lads who bought mortgage bonds in 2007 and dot com hand grenades in the spring of 2000.

Via CFTC:

The amount of speculators" bearish, or short, positions in
10-year Treasury futures exceeded bullish, or long, positions by
394,689 contracts on Jan. 10, according to the CFTC"s latest
Commitments of Traders data.

A week earlier, speculators held 344,931 net short positions
in 10-year T-note futures.

Net shorts in five-year T-note futures and Eurodollar
futures among speculators also climbed to record highs in the
latest week, while speculative T-bond net shorts rose to their
highest level since March 2012, according to CFTC data.

Net shorts in federal funds futures among speculators rose
to their highest since August 2015.

The rise in net shorts among these futures contracts
suggested this group of market participants believes bond prices
will resume their fall despite their rebound since mid-December.

Juxtaposing short data with actual yield action, proves, in fact, that the shorts are literally pavement apes -- idiots devoid of reason -- slaves to the basest instincts that require zero thinking. These are horrible people.

Yields on the 5 year treasury have doubled since our glorious leader, Donald J. Trump, seized power, to 1.94%. Short contracts now outstrip longs by a record 1.1 million -- making this Tower of Pisa trade indelibly lopsided.

In the end, “real money always wins,” said Tom di Galoma, the managing director of government trading and strategy at Seaport Global Holdings. “Speculators tend to get taken out. We’ve seen this occur several times in the last 10 to 15 years, where everybody thinks rates are too low.”

A shift back into Treasuries may already be starting. Fixed-income managers who oversee a combined $225 billion held 24.7 percent of their assets in U.S. government debt in the week through Jan. 17, according to Stone & McCarthy Research Associates client survey. That’s higher than the average of 24.2 percent in 2016.

However, signs of even a slightly more aggressive Fed can still make the bearish trades worthwhile. Last week, Fed Chair Janet Yellen said rates could rise “a few times a year” from now through 2019. That caused five-year yields to soar by the most since the central bank raised rates Dec. 14.

In the past, the Fed has been notorious for being too confident about growth and the pace of rate increases. Jason Evans, co-founder of hedge fund NineAlpha Capital LP and the former head of U.S. government bond trading at Deutsche Bank AG, believes this time the central bank will stick to its projections and lift rates three times in 2017.

“It’s understandable that there’s going to be a little ebb and flow,” said Evans, who said his firm put on short positions this month. Even so, “we’ll have higher yields later this year. We at least know the direction we’re heading in.”

The expectations for the Federal Reserve is for 3 hikes in 2017, then more in 2018. However, that hope is predicated on economic growth expansion -- which cannot happen without the cooperation from a Congress who has only, at this time, approved 2 of Trump"s 21 cabinet appointees and appear to be ready to fight him, tooth and nail, every step of the way. Couple that with the fact that the dollar is at 14 year highs and the cost to borrow funds has spiked, dramatically, since election day -- making Trump"s fiscal dreams increasingly difficult to attain, I think it"s fair to say higher rates isn"t a foregone conclusion.

I am long zeroes, via $ZROZ.

Content originally generated at iBankCoin.com