-- Posted Sunday, 14 August 2005 | Digg This Article
This Fridays COT numbers confirmed the anticipated deterioration in Gold's COT structure, after the past weeks strong rally. Short term gold does not look like an attractive buy, even though we could get through the resistance in the $455 area with this move.
Looking at the most recent COT chart for gold I feel a liquidation of some more speculative gold positions next week might be prudent. If past performance is any indication of the future we will probably see a correction of $20-35 in the POG by the end of September. Gold has still rallied from $438 to $445 after Tuesdays COT data, so it's safe to assume that commercial shorts stand at even higher levels today than the graph indicates. Additionally gold is overbought short term (RSI, blue circle). In the past year similar market structures have lead to quite sharp and fast corrections (oval red areas). I'm not saying this will happen in the immediate future but stops at the power up-trend lines for more speculative holdings might not be a bad idea.
The dollar has declined quite nicely the past few weeks. Even though COTs don't run the forex market like they do gold and especially silver (IMO) they have still had a quite good record of being on the right side in the dollar the past few years. The huge commercial short position in the USDX has declined somewhat the past few days but there is still room for a lot more to the downside. However, with gold looking quite vulnerable short term and the USDX trading around it's 38% Fib. resistance and being quite oversold short term, we might get a little reaction to the upside in the dollar, before continuing on our ride to new lows.
The COT structure in silver has not changed much the past week. Just looking at silver by itself doesn't get one worried. It looks like there would be plenty of room to the upside. However, if we get a correction in gold, I can't really see it as silver positive. Hence, I'm happy with the silver positions I hold at the moment and look for possible weakness in the coming days/weeks to pile up some more.
While gold managed to break it's triangle formation to the upside we might still have to wait for one more corrective cycle before breaking to the upside in silver. If we get a correction in gold and silver, I would not bee too concerned even if resistance in silver at the $6.80 level would brake marginally. I believe silver is a manipulated market and if I would try to hold silver prices down, I would definitely try to shake silver investor confidence by trying to push the price below it's long term up trend line in the probable gold correction in the next few days/weeks.
As one reader pointed out, and many of you have probably noticed, the Nymex silver inventories have risen to 111 M oz the past month. Nymex silver inventories have stood at 102-105 M oz for months before that. Put into perspective this 6-9 M oz inventory increase is about 0.7%-1.0% of annual consumption and quite small compared with the annual structural deficit of roughly 60 M oz in 2004. I don't see this as being of any big significance for silver so far, but it's worth keeping an eye on warehouse stocks. I don't believe we will see a real explosion in silver price before we start to have serious delivery problems in silver. With warehouse stocks increasing, though marginally, I don't see that happening in the immediate future. And that is good, since it gives some more time to accumulate holdings at these give away prices.
August 13th 2005
Carl Löfberg
Tampere, Finland
-- Posted Sunday, 14 August 2005 | Digg This Article
