WILL GOLD AND SILVER TRADE LOWER THIS COMING WEEK? / MACLEODFINANCE

Will gold and trade lower this coming week?

The paper shorts will not give up easily, and so long as there are weak speculators, they will try to drive prices lower.

MACLEODFINANCE

On Friday, gold closed at $2327, threatening to break lower than the lows of the previous week. 

This could trigger a few more stops in Comex’s Managed Money category. 

There’s no doubt that the Swaps are on a mission to do so.

So far, they have succeeded moderately, reducing Open Interest significantly from recent highs. 

But according to CFTC numbers for last Tuesday, Managed Money was not much overbought:

The pecked line at about 110,000 net long is the long-term average position, and anything over that indicates an overbought position: the higher it is the more overbought. 

But the next chart shows the problem from the Swaps’ point of view, adjusted for an estimate of their positions on Friday and adjusted for Friday’s price:

So long as pressures from Asian physical buying don’t mount too much this week, they are bound to try and shake out more longs.

Of course, this does not allow for the position in London, which is almost certainly struggling to keep a lid on prices in the face of strong physical demand. 

This is because other than for China, Russia, and their close allies, much of the world’s mining and scrap output is sold through London, so that’s where the supply/demand imbalance is likely to be most acute.

Bizarrely, we Westerners are still net sellers, judging by ETF liquidation, which is next:

The market psychology is clear. 

This bull market is in its early stages, when the public still sells while the professionals buy. 

The odd thing about this one is that gold is already marching into new high ground, which is usually when public participation is greatest.

But gold is not a typical financial asset. 

The professionals are central banks taking a view on monetary risk. 

There is public participation, but that is in China, where there are massive savings looking for a home amongst unattractive alternatives.

We would do well to anticipate this demand for physical metal, and not get sucked into penny-pinching on whether to buy gold at $2327 or wait for it to trade lower. 

That’s the stuff of missed opportunities.

A very short note on silver: the liquidity position there is scary. 

The next move up will be even more dramatic than that of gold.