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The COT’s are Running!

-- Posted Friday, 26 October 2007 | Digg This ArticleDigg It! | Source:

Margin calls hurt, but when margin calls run into the millions of dollars, they really hurt!  The commercial traders have been shorting gold since the market last dipped, with gold at 660.00.  Imagine covering margin calls when the price has run 15% against you!


          The problem with short selling during a bull market, is that no matter how many times it works, there comes that one time when your timing is wrong.  If you can be wise enough to cut your losses quickly, (very few do so), you may live to trade again.


          The market action we are watching now reminds me of the trading we saw in the late 1960’s.  The central banks of the London Gold Pool were desperately trying to hold the gold price down at 35.20/oz.  To allow it to rise would be detrimental to the confidence level of western currencies in general, and the US dollar in particular.  People might realize that money was being inflated. 


          Most of the gold at that time was being supplied by participating countries, to the gold users via the London Gold Market.  Normal turnover was about 5 tonnes per day.  Suddenly volume began to increase to 20, 30 and 50 tonnes per day.  During most of 1967, the London Gold Market officials kept having to sell gold faster than they could replace it with freshly mined gold from South Africa and Ghana.  In 1968 US central bank officials re-affirmed their commitment to hold the gold price to 35.20 – “down to the last ounce!”  Gold was being flown in from the US to London, to help meet the demand. 


          On Friday March 8th 1968, 100 tonnes were gobbled up, almost 20 times the normal volume.  By the middle of the following week the demand rose to 175 tonnes, then on Thursday the total rose to 225 tonnes.


           On Friday March 15th 1968, Queen Elizabeth, after a meeting at Buckingham Palace the evening before, declared a ‘bank holiday’.  The London gold market was officially closed for two weeks, and when it re-opened 2 weeks later, we were introduced to ‘two-tier’ gold prices.  One for banks, and one for the private sector. 


          Once the banks threw in the towel, gold rose to 850.00 in February of 1980.  A rise of almost 2400%.   It took Paul Volcker and interest rates of over 20% to finally halt the price rise.


          The situation today has a lot of similarities to the scenario of the 1960’s.   Thanks to Frank Veneroso and Gata (, we know that the banks are trying to play the same game again.  Anyone who ‘shorts’ gold at this time is counting on the banks to be more successful than they were in March of 1968.


          I am well aware of the fact that the commercial short position is currently larger than ever, but if you turn that around, it means that every one of these contracts will have to be covered!  And the day will come when they burn there fingers!  Is this the time? That is the 64$ question.


          As for me and my subscribers, WE’RE ALL LONG!


For you chart lovers, feast on these charts.


Charts courtesy



Featured is the GLD gold ETF.  This ETF has thus far gobbled up over 19 million ounces of gold.  The trend is up, supported by the RSI and MACD (green lines).  The channel defined by the blue speed-lines leaves room for a pull-back to the bottom speed-line without disturbing the uptrend. The upside target for this move is 82.




Featured is the SLV silver ETF.  This ETF broke out on the upside of a bullish pennant formation yesterday (blue arrow), and the breakout was confirmed today in a big way.


The RSI and MACD are positive (green lines), and the green arrow is our target for this move (at 155).  The 50DMA is on course for a positive cross-over with the 200DMA, and both are rising again.




Featured is the index that compares silver to gold.  Generally speaking, a reliable sign of a bull market in metals is when silver is outperforming gold.  We see here a double bottom (green arrows), that is confirmed by the RSI and MACD (green lines).  Almost in stealth fashion silver has started to move up faster than gold.




Featured is the HUI index.  Earlier this month the index broke out above the 400 resistance level (green line).  Most breakouts are tested by profit takers, and the HUI has successfully met the test and is now on its way to a target at 490.  The RSI is positive (blue arrow), and the MACD has arrived at its previous resistance level, which can now be expected to offer support.  The 50DMA and 200DMA are in positive alignment, and both are rising.



Summary:  These are volatile days.  We must be prepared for some wide swings.  There will be days where gold will rise or fall by 25.00.  The overall trend is up.  Technical analysts who focus only the technicals, without taking the bullish fundamentals into consideration will be tempted to sell gold short, just when they should be holding on for the wild ride ahead.



Please do your own due diligence.  I am NOT responsible for your trading decisions.


Peter Degraaf is an online stock trader, with 50 years of investing experience.  He issues a weekly alert for his subscribers.  For a 60 day free trial you may contact him at or visit his website

-- Posted Friday, 26 October 2007 | Digg This Article | Source:


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