Gold bugs always amaze me. Perhaps I'm sensitive to their discovery having grown up finding Goldbug on every page of Richard Scarry's, Cars and Trucks and Things that Go. All I know they'll come up with any reason to justify why, "This time it's different." I've plotted the collective actions of the large speculators on the included chart as well as the actions of the commercial traders. Take a look and tell me which group you'd like to follow.
We pulled a long-term chart this week to put the gold rally in perspective. There's no question that the move to negative rates by Japan along with the possibility that still others will follow their lead has put a bid in the gold market. Investors looking for a place to park cash have decided that gold could possibly be a better store of value at these prices than the guaranteed loss factored into negative interest rates. Gold has rallied more than $200 from its mid-December low and now sits just above the minor trend line dating back to 2013. Major resistance comes from the trend line off the all-time highs and now sits around $1,350. We believe the major trend will hold.
Notice particularly in the second pane of the included weekly chart the near opposite positions of the Large Specs and the Commercial Position. Each circle coincides with a buying peak by the large speculators. It stands to reason then that the commercial traders have been the heaviest sellers at each peak. This forward hedging by the gold miners has halted each attempted speculative rally since the all-time highs were made in 2011. We believe the current situation will usher in more of the same. Commercial traders have been sellers for five straight weeks in the gold market and are now short more than 160k contracts. This is the most short they've been since January of 2015 and you have to back nearly to 2013 to find the next most collectively shared negative outlook among the commercial trader population. Again, we believe the commercial traders will halt the recent rally forcing the spec longs out of their positions thus turning the market lower.
We're watching the daily chart closely for signs of a reversal lower in the April gold futures and we'll distribute the COT sell signal by email the night it materializes. Once this opportunity presents itself, we'll be selling gold short and placing a protective buy stop at whatever this swing high turns out to be. History is on the side of those with deep knowledge and deeper pockets. Therefore, we'll seek to put the commercial traders' collective weight behind our position and scalp this swing trading opportunity for all it's worth because the odds are it's not any different this time.
