-- Published: Tuesday, 22 May 2018 | Print | Disqus
By Craig Hemke
For the past three weeks, we've written and warned about a pending "Spec wash" that would drive gold prices lower in the short term. If you missed these articles, here are the links for your review:
Having correctly forecasted this ongoing dip in price, we thought it would be fun today to share with you where price is headed next, once this process of washing out the Specs is completed.
And it will be completed soon, this much we can say with certainty. There were three such COMEX Gold Large Spec Washes in 2017. If we begin counting days of duration with the day price was initially forced down through the 200-day moving average and end with the day price regained this key technical level, we find this:
• May 2017 -- 13 days
• July 2017 -- 12 days
• December 2017 -- 14 days
On the current chart below, you can see that today, May 22, is Day 6 of this current cycle:
But simple timing isn't enough to effectively call a bottom and turn in price. We must also look at other history. In this case, consider that The Fed is expected to hike the Fed Funds rate again at the next FOMC meeting in three weeks.
Once again, it appears that the price of COMEX gold is sliding ahead of this announcement... just as it has in the lead-up to each of the previous six Fed Funds rate hikes. However, did you know that COMEX gold has actually rallied in the days following five of these six rate hikes? The chart below shows you this is graphic detail and, as you can see, these post-FOMC rallies have ranged from +6% all the way to +30%.
And then consider this, too. Buried within the most recent Commitment of Traders data is something that every other gold "analyst" has missed. On the legacy CoT report—where positions are summarized simply as Commercial, Large Speculator and Small Speculator—the GROSS amount of contracts held LONG by the Commercials just hit an all-time high. This is not the NET number discovered by subtracting gross longs from gross shorts. Instead, this is simply the GROSS amount of longs held by the Banks and Dealers that constitute the "Commercial" category.
As you can see below, the most recent highs in the Commercial gross long category preceded significant rallies in COMEX gold.
• From the previous all-time high of 193,668 contracts on the report surveyed November 18, 2014, price rallied $160 or about 14% over the next two months.
• From the previous #2 high of 186,976 contracts on the report surveyed July 21, 2015 (coincidentally four days after the infamous "gold is a pet rock" story in the Wall Street Journal), price rallied $120 or 11% over the next three months.
• Now we have a new all-time high as of last week with the COMEX Gold Commercials gross long 195,925 contracts.
Putting this all together, it's fair to assume—and very likely—that we will soon see a significant rally in COMEX gold that is timed to begin sometime in early June, either just before or just after the FOMC of June 12-13.
On your final chart this week, you can see that a rally of just 10% from here would take price to $1,420 or so and well above the breakout level of $1,400 that, since late last year, we've been forecasting to occur by late summer 2018.
Well, here we are, and it's pretty plain to see that the forces are now aligning to make this all play out.
Once above $1,400, and after several tests of this area as support, price will then begin a move toward $1,525, reaching that level sometime later this year or in early 2019. Once above $1,525, following COMEX gold might actually become fun again!
But first things first. Watch for a turn and rally in the days ahead as this latest "Spec wash" comes to an end.
Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities. Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.