-- Posted Monday, 20 September 2010 | | Source: GoldSeek.com
By Gene Arensberg Esse quam videri – To be rather than to seem.
Silver “confirms” with an impressive breakout attempt of its own.
“Government, even in its best state, is but a necessary evil; in its worst state, an intolerable one.” – Thomas Paine
ATLANTA (Got Gold Report) – With gold printing new all time highs in the $1,280s and silver testing new multi-decade weekly closing highs above $20.70 this week, can it be any more natural for people to be warning us that both precious metals are in a bubble?
From our perspective, the people doing the warning about gold being in a bubble are the same ones who told all of us that gold was not a worthwhile “investment” because it cost money to store and it doesn’t earn any interest or dividends. Now that gold has been above $1,000 for a year we believe those calls by the anti-gold babblers are a form of “metal envy.” We cannot wait to see what they are saying when gold clears the next $100 or $200 or $300 or $500 hurdles as it almost assuredly will before this Great Gold Bull breathes its last.
The gold bubble babblers expediently overlook the biggest bubble there ever was or probably ever will be in our lifetimes – that, of course, is the massive, unprecedented overprinting and horrible, immoral competitive dilution of all fiat currencies by governments.
More in a moment, but first here’s this week’s closing table:
September 18, 2010 | | | | |
Got Gold Report Indicator Comparison | This Week | Prior Week | Change | w/w Chg % |
Gold Weekly Close (USD) | $1,274.36 | $1,246.20 | $28.16 | 2.3% |
Silver Weekly Close (USD) | $20.74 | $19.87 | $0.87 | 4.4% |
GLD Metal Holdings (Tonnes) | 1,300.83 | 1,293.53 | 7.29 | 0.56% |
SLV Metal Holdings (Tonnes) | 9,381.74 | 9,307.17 | 74.57 | 0.80% |
Gold Close COT Date | $1,268.22 | $1,255.54 | $12.68 | 1.0% |
Silver Close COT Date | $20.46 | $19.79 | $0.67 | 3.4% |
Gold LCNS (Contracts Net Short) | 292,939 | 287,680 | 5,259 | 1.8% |
Silver LCNS (Contracts Net Short) | 65,061 | 61,798 | 3,263 | 5.3% |
HUI EOW Close | 495.12 | 481.72 | 13.40 | 2.8% |
US Dollar Index Weekly Close | 81.42 | 82.70 | (1.28) | -1.5% |
ICE Commercial Net $ Pos. (Contracts) | (6,889) | (16,485) | 9,596 | -58.2% |
Gold:Silver Ratio Weekly Close | 61.45 | 62.72 | (1.27) | -2.0% |
Gold Intra-week High | $1,282.72 | $1,262.26 | $20.46 | 1.6% |
Gold Intra-week Low | $1,241.56 | $1,237.01 | $4.55 | 0.4% |
Silver Intra-week High | $20.99 | $20.14 | $0.85 | 4.2% |
Silver Intra-week Low | $19.81 | $19.57 | $0.24 | 1.2% |
Gold High/Low Spread | $41.16 | $25.25 | $15.91 | 63.0% |
Silver High/Low Spread | $1.18 | $0.57 | $0.61 | 107.0% |
Note the continued outperformance of silver over gold this week. The most “interesting” development is a stunning drop in the number of net short contracts for the U.S. dollar index by ICE commercial traders. That probably reflects a sudden “Forex earthquake” as the BoJ intervened to weaken the yen.
A little later in this offering we will compare investments in elite big cap equities and gold since 2001. It may not be a “fair” comparison, but it sure is an interesting one as gold now tests the uncharted technical waters above its previous $1,260s resistance.
This Week’s Radar Screen
First things first, the Got Gold Report – the full report – is published biweekly at least 24 times per year. Between reports we communicate more regularly on the GGR web log, or in our COT Flash reports for subscribers. COT Flash reports appear on off weeks for the Got Gold Report when there are what we consider important changes in the commitments of traders reports.
The purpose of the Radar Screen is to briefly summarize our positioning for the gold and silver markets, and also to highlight a few of the dozens of indicators, ratios and graphs we keep in constant touch with at Got Gold Report. Long-time readers know we update most of the Got Gold Report linked charts each week, even the weekends when we don’t publish the full report.
Changes to the linked charts are almost always completed by 6:00 pm EDT on Sunday evening (except when Monday is a holiday) and occasionally during the week itself as events unfold. The chart links are always at or near the bottom of the reports.
Here is this week’s short-term trading chart for gold:
Here is this week’s short-term trading graph for silver metal.
Don’t Forget the Charts
As usual, much of this week’s technical and market commentary is contained in comments inserted in the actual linked charts below. (One dozen of them.)
Moving on, here is our look at this week’s COT report.
Gold COT
The Commodities Futures Trading Commission (CFTC) issued its weekly commitments of traders (COT) report at 15:30 ET Friday, September 17, 2010. The report is for the close of trading as of Tuesday, September 14.
At Got Gold Report we are focused on the changes in positioning of the largest futures traders in that report – the traders the CFTC classes as “commercial,” including the bullion banks, large dealers and swap dealers combined. We refer to those commercial traders as “LCs” for “Large Commercials.”
As Gold gained a net $12.68 or 1% from $1,255.54 to $1,268.22 COT reporting Tues/Tues COMEX commercial traders increased their combined collective net short positioning (LCNS) by a relatively small 5,259 contracts or 1.8% from 287,680 to 292,939 contracts net short.
Here's the nominal LCNS graph for gold futures (COT Graph1):
Source for data CFTC for COT, cash market for gold
The COMEX gold futures open interest rose by 8,494 contracts from 585,564 to 594,058 contracts open. Once again, the closing price Tuesday was the highest-ever nominal close for gold on a COT reporting Tuesday, but the large commercial net short positioning was still 15,292 contracts below the 308,231 highest LCNS in our records which occurred December 1, 2009 with gold then in the $1,190s and the open interest then much lower (521,433 contracts).
Since Tuesday support seemed to jump from the $1,240s to the $1,260s which was former resistance. The shortest of short term traders will be watching that level very closely. Resistance is currently undefined and unknowable, but traders will likely view $1,300 as an important battlefield looking higher.
We compare the nominal gold LCNS to the total open interest. That gives us a better idea of the relative positioning of the largest hedgers and short sellers – the Producer/Merchants and the Swap Dealers combined into a single category - on the COMEX.
When compared to all contracts open, the relative combined commercial net short positioning (LCNS:TO - the most important graph we track) was statistically flat at 49.3% of all COMEX contracts open.
Here's the LCNS:TO graph for gold (COT Graph 2):
Source for data CFTC for COT, cash market for gold
As the LCNS:TO moves higher it suggests that the largest commercial traders are more willing to increase their net short positioning for gold futures and vice versa. Conversely, we think that lower LCNS:TO readings are an indirect measure showing us there is additional bull-side “horsepower” on the sidelines in the gold futures markets.
So, when we see an LCNS:TO of something like 60% as we witnessed in December of 2009, we are conditioned by experience to raise our trading stops (if long) because it shows that the largest sellers of gold futures are aggressively on the sell side. A very high LCNS:TO also suggests there isn’t very much bull side firepower left under “normal” conditions.
Notice please, that with gold on a bona fide breakout, closing at its highest ever on a COT reporting day and despite a historically high, near-record open interest – the LCNS:TO is remarkably still slightly under 50%. The 50% level is historically on the high side, but we saw much higher levels in previous breakouts for gold.
As we have said many times, high LCNS and LCNS:TO readings are telling us that the commercials are more confident in lower gold prices, but they are NOT telling us that gold is heading lower necessarily. It might be or it might not be.
With the LCNS at a high level we want to raise our trading stops to a level which might allow us to stay in the trade if gold advances, but books most of the hard-won gains if the Big Sellers get the upper hand just ahead.
Therefore, we think it is time to protect a majority of our profits and to raise our trading stops but with gold on a sure-enough breakout above all known resistance, we also want to allow for at least moderate volatility. We want the ability to survive the first line of very tight stops which have likely already migrated up to just below $1,260. That’s if a sell raid of only moderate strength occurs.
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The above is an excerpt of the full bi-weekly 24-page Got Gold Report available by subscription at www.gotgoldreport.com. GotGoldReport.com also features a very popular free web log with timely and interesting gold, silver and resource company “intel.” To read more as Gene turns next to in-depth analysis of the most important silver COT reports in decades, in-depth coverage of our gold and silver positioning, trading analysis and market intelligence, visit the link above to visit the “blog” and consider subscribing for the full report. Thank you for your investment of time with us.
Caveat Utilitor.
A land developer, professional numismatist, self-taught bullion trader and investor since 1980, Gene Arensberg analyzes technical and fundamental developments in the precious metals markets. In 2000 Gene started sharing his own market research with fellow traders and fund managers. Those email reports evolved into his popular Got Gold Report, a biweekly look at important indicators for gold and silver published on the web. Gene’s more in-depth market reports, insights and trading ideas are available at www.GotGoldReport.com.
-- Posted Monday, 20 September 2010 | Digg This Article
| Source: GoldSeek.com
