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It''s easier to be a gold bug when you have a real one, and here''s how
By Ted Butler
InvestmentRarities.com
Wednesday, April 20, 2005
The latest Commitment of Traders Report (COT) in gold has generated
great interest, and for good reason. The numbers are out of line
with any time in the past. You may recall, that a few weeks ago, I
actually labeled the gold COTs as a mistake, so unusual were the
numbers. The Commody Futures Trading Commission assured me that
there was no mistake. After thinking it over for a while, I now
conclude that they are right and I was wrong. I now feel that the
report reflects positions correctly. But the numbers are still so
out of line with normal historical patterns, that an explanation is
called for.
Briefly, what has everyone who closely studies the COTs scratching
their heads about in gold is that the dealer net short position and
the tech fund long position is extremely large, given the current
price level and moving average structure. At face value, the
dealers' and tech fund positions are reflective of a top and not
a bottom. After all, at the recent top at around $445, the dealer
net short position was about the same (145,000 contracts net short)
as their current short position. Normally one would have to be
bearish about such a dealer net short position. But I don't think
that's the case now.
I think there has been a profound change in the gold COTs. While the
non-commercial large trader long category is at a level suggesting
the tech funds are on the long side of gold in a big way, I don't
think it is the tech funds that are long gold. I think some other,
very large, non-tech fund buyers entered the market and bought what
the tech funds were selling on the break from previous highs above
$445 in March -- just like what occurred in silver a few months ago.
You must remember that while changes in the non-commercial category
are almost always the result of tech-fund activity, the tech funds
are not the only traders in that category. So while most think the
tech funds are already on the long side in gold (and silver), I
don't see it that way.
I don't want to dwell too deeply (for personal reasons) on why I
say it's not the tech funds that are heavily long, other than to say
they never got buy signals (until today) and the concentration
ratios in the COT for the long side say it isn't them. The good
news, of course, is that until the tech funds do accumulate a large
long position, the chance of a major selloff is slim.
The bottom line is that the COTs in silver and gold must be read
with a filter that incorporates a new entry of a speculative trader
on the long side. While I think it could be profoundly bullish, it
also means we are looking at a new game, with many possible
outcomes. Those new outcomes can't be known at this time, certainly
not by me, but I think we may have to throw the old COT guidelines
out the window.
I am very excited about this new game and the new challenges it will
provide for analysis. I hope this doesn't sound selfish, but I am
going to take this opportunity to break with a pattern that I have
let myself slip into: appearing to offer short-term trading
suggestions. I know that many have profited off the buy points and
caution I have raised at extreme COT readings, and I am happy for
all who have profited. I am particularly happy from the feedback you
have given me, which shows just how much you have learned. But I
never wanted to get into that mode in the first place. I never
intended to position myself as offering trading advice.
My main purpose has been to end the silver manipulation and
encourage all to investigate and then buy real silver. So I am going
to try to get back to those roots and try to forgo so much detailed
public analysis of the market structure, and conduct that analysis
on a private basis, where it belongs. I will, of course, publicly
deal with market structure when it is unavoidable.
The latest Commitments of Traders Report (COT) in silver showed no
big surprise. Extrapolating through today, the dealer net short
position is in the low to mid-50,000 contract range. While this
level is a bit higher than dealer net short troughs at previous
ideal buy points and might mean that we still dip some in price, the
risk/reward parameters suggest a full silver long exposure.
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RECOMMENDED INTERNET SITES
FOR DAILY MONITORING OF GOLD
AND PRECIOUS METALS
NEWS AND ANALYSIS
Free sites:
http://www.cbs.marketwatch.com
http://www.usagold.com/amk/usagoldmarketupdate.html
http://www.capitalupdates.com/
http://www.silver-investor.com
http://www.thebulliondesk.com/
http://www.goldismoney.info/index.html
http://www.minersmanual.com/minernews.html
http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html
http://www.investmentrarities.com
http://www.kereport.com
(Korelin Business Report -- audio)
http://www.plata.com.mx/plata/home.htm
(In Spanish)
http://www.plata.com.mx/plata/plata/english.htm
(In English)
http://www.resourceinvestor.com
Subscription sites:
http://www.lemetropolecafe.com/
http://www.interventionalanalysis.com
http://www.investmentindicators.com/
Eagle Ranch discussion site:
http://os2eagle.net/checksum.htm
Ted Butler silver commentary archive:
http://www.investmentrarities.com/
----------------------------------------------------
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