Sunday, 10 March 2013

Commitment of Traders - Gene Arensberg

Gene Arensberg at the "GotGoldReport" analyses the Commitment of Traders reports in depth, read the full article for charts etc....more.....
With the exception of the 2008 panic period the Producer-Merchant shorts are at a historic low level now, which is the same thing as saying the Producer-Merchants are definitely not being aggressive on the short side of gold.
Extreme lows for the Managed Money net long position are usually associated with important bottoms for the price of gold. Therefore, unless there is a tectonic shift underway, we are likely nearing an important bottom for gold prices. 
The way we look at it, The Funds have been putting on more and more “insurance shorts” which is, of course, selling pressure, driving the paper price lower and premiums in Asia higher. The lower prices encourage them to put on even more insurance shorts. Whether intentional or not, The Funds are building up a very large magazine of buying firepower at the very same time as the Big Hedgers are becoming less and less willing to hedge gold.  
The fact that this oversized short position for The Funds comes ABOVE the very important $1,525 technical support zone, not after gold has broken to new lows, is key in our view. As is the very apparent fact that the smartest, best funded and presumably the best informed traders of gold futures on the planet (the PMs) are the least willing to put on new gold hedges with gold near $1,600 since the 2008 panic and gold then in the $700 range. ......The Funds have been buying a bunch of gold insurance, driving gold lower to levels that the usual hedgers are not comfortable putting on new hedges. What happens when they take away that selling pressure? And, The Funds run the risk of overrunning the physical market to the downside, tripping a giant reflex counter-spike when they reverse course.
We do not want to give an impression that a reversal is guaranteed, nor do we want to understate just how dangerous the setup has become to traders on both sides of the battlefield. But we also must call attention to what we believe could be potent rally medicine should the bears fumble or tumble. Ironically it is the Spec Funds putting a majority of the pressure on silver recently. When, not if, but when it reverses they will also be driving the rally wagon, with locals and smaller traders trying as best they can to front run them. 
Bottom Line: 
 Gold bounced modestly up to test near $1,620 this week, but the rally fizzled, having 
failed to ignite a sure-enough short covering rally - yet. The March 1 COT data above 
reflects prices near the high for the COT week. 
 Both gold and silver are close to, but ABOVE, their very important $1,525 and $26 key 
long term support levels. 
 With gold near $1,600 and silver below $30, the Legacy COT relative commercial net 
short positions for gold and silver (LCNS.TO) are at very low levels suggesting the Big 
Hedgers are not, repeat not, being aggressive with their hedging, to the contrary. 
 Traders classed as Managed Money, The Funds, continue hold near record gold shorts 
and have been a good deal of the downward pressure in the paper gold market. 
Downward pressure now, but to a certainty major buying pressure to come. 
 Managed Money building “insurance shorts” while mostly hanging onto their long 
contracts. We believe that’s a “tell.”
 Producer Merchant commercials, including bullion banks, report their lowest collective 
gold net short position since the 2008 Panic. Extreme lows in PM net shorts often mark 
bottoms for gold prices. Page | 30
 Very high Managed Money gross short gold positions have usually been very short term 
events. They are usually very bullish in a contrary sense, but they warn us that the 
futures market has now become massively imbalanced – and therefore dangerous to 
both sides of the battlefield, very short term.
 Extremely high Managed Money and Non-Reportable shorts in futures are normally the 
highest of high octane rally fuel for gold, once The Funds and the smaller traders that try 
to front-run them become convinced there is no downside left in the move. 
 The Funds are building up a very large magazine of buying firepower at the very same 
time as the Big Hedgers are becoming less and less willing to hedge gold. 
 The COT shows that the largest, best funded and presumably the best informed traders 
of paper gold on the planet have reached the kind of positioning that has been consistent 
with major turning points in recent (gold bull market) history, lacking only a meaningful 
catalyst to trigger a potentially violent change in short term direction. 
 Other Reportables, very large traders trading for their own book, seem to be making a 
consistent statement in both gold and silver that the current correction is on borrowed 
Right, wrong, win or lose, upon careful reflection we believe the current COT setup has becomethe most bullish in a contrary sense we have seen it since December of 2008. That does not necessarily mean that gold is about to surge higher immediately; it does not mean it cannot probe even lower. It can and it might, but we believe the data supports the notion that the very important technical support levels of $1,525 for gold and $26 for silver should prove to be extremely powerful (if tested), and very likely to be what we refer to as OS or overwhelmingsupport. 
Key among our observations this time is that Managed Money collectively are more fearful of a support breakdown for gold this time than they were last summer, as evidenced by the huge number of shorts they have put on the past four months. Even so they are not so fearful that they are willing to “dump their long gold contracts.” Not yet at least. Meanwhile the Other Reportables are fearless in their net long positioning for both gold and silver. It would not take very much of a catalyst to trigger an explosive, perhaps even an epic reaction in the gold market now, with the most likely direction of that reaction to be something like the photo inset. 
Repeating from last time: “At some point the Funds will move to cover those insurance shorts. When they do it will be difficult or impossible to keep it a secret. Nimble locals and smaller traders will likely attempt to front run their covering which could lead to a major imbalance of positive liquidity for short periods of time in the near future. 
Repeating: We are not so arrogant that we will declare absolutely that gold’s $1,525 support level will hold this time, or that silver will hold $26 (if challenged). With the Funds so aggressively on the short side they have the potential to wreak enough havoc and cause enough fear to break both metals if the stars align for them just right. But we see those support levels being as strong as an acre of garlic, more likely to hold than not and the way the futures are distributed now, The Funds cannot afford even a chink in their bearish armor. If they are going to break gold and silver they’d better get on with it before the sharks in the trading pits and in the worldwide electronic bourses everywhere get in and front-run most of their have-to short covering. 
Both gold and silver have been weaker, the miners big and small have been pathetic, a major worry and fly in the bulls’ ointment, but we believe, based on a preponderance of all the data we review each week, that this correction has nearly run its course. We will know soon if so, but the selling pressure by TheFunds has pressed precious metals down to whatmay prove to be a high-powered, very leveragedfulcrum point.
In any case, we cannot ever remember the futures market being so strongly imbalanced, except perhaps for the 2008 period. 

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