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Sprott''s John Embry discusses gold price manipulation on ROB-TV
By Ted Butler
InvestmentRarities.com
Tuesday, July 5, 2005
Sometimes it's downright eerie how reliable the commitment of
traders (COT) report can be in forecasting significant moves in the
gold and silver market. We've just experienced one of those
times.
The buildup in tech fund long positions and dealer short positions
in gold and silver created a clear high-risk situation that resulted
in a sharp price break.
Make no mistake; this recent swoon in price was caused by the tech
funds dumping as the dealers engineered the price through the
critical moving averages. This is not a complaint, just an
explanation for what just occurred. In fact, if this recent selloff
caught you off-guard, that could be only because you did not
consider the COTs.
I am not encouraging anyone to approach the markets on a short-term
basis. But if you do decide on such an approach, and you disregard
the message of the COTs, you will greatly handicap yourself.
So it is not surprising to me to read more written about the COTs
and greater acceptance of this market structure approach as an
analytical metric. What is surprising (and amusing) is how anyone
can attempt to explain the recent round trip in gold and silver
prices without reference to the COTs. Of constant surprise is how
the silver miners can ignore the price being set by speculators on
the COMEX.
So what is the current message of the COTs?
First let's look at where we've been.
In gold, the tech funds plowed onto long side, with a reckless
abandon over a four-week period, to the tune of 110,000 net
contracts. Now we are in the midst of the unwinding, which commenced
on Friday, July 1. It will take aggressive and high-volume selling
to clean out the tech funds' gold-buying orgy, such as we're
currently witnessing.
In silver, the flushout appears complete or largely so. I base this
on daily price and volume statistics. By my calculations, much of
the 30,000 total net contracts bought by the funds and sold short by
the dealers on the previous rally have been reversed on the price
decline in the past week. As such, the recent high risk in the
silver market is no longer present, in my opinion. It's safe to
go back into the water.
This is important in silver, because the fundamentals are so
powerful and the price is so far below real value that you need a
good reason not to be overinvested at all times. The only good
reason I have ever found not to be overinvested in silver is when
the COTs are indicating that the funds are very long and the dealers
very short. This was the case until this recent price decline
remedied that circumstance. So I see no compelling reason not to be
overinvested in silver, especially below $7.
Once again, we are set up with a win-win situation in silver. We
know there will be a rally once the tech fund selling is exhausted.
What we don't know is how the dealers will behave on that coming
rally. Will they sell, as they always have, or will they stand
aside, allowing the price to explode? It is a resolution best
awaited from a fully-committed posture.
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RECOMMENDED INTERNET SITES
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NEWS AND ANALYSIS
Free sites:
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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
http://www.goldpennystocks.com/
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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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