Best of the Week
Most Popular
1.Spain Ignores Scotland Lesson as Catalan Independence Referendum Could Spark Civil War - Nadeem_Walayat
2.Used Car Buying From UK Dealer Top Tips, CarMotion.co.uk Real Customer Experience - N_Walayat
3.Spanish New Civil War Begins as Madrid Regime Storm Troopers Quell Catalan Independence Rebellion - Nadeem_Walayat
4.Virgin Media Broadband Down, Catastrophic UK Wide Failure! - Nadeem_Walayat
5.Are the US Markets setting up for an Early October Surprise? - Chris_Vermeulen
6.The Pension Storm Is Coming To Europe—It May Be The End Of Europe As We Know It -John_Mauldin
7.Stock Market Crash 2018; Will it Prove to be Another Buying Opportunity - Sol_Palha
8.The Profoundly Personal Impact Of The National Debt On Our Retirements - Dan_Amerman
9.Stock Market as Good as it Gets; Like 2000 With a Twist -Gary_Tanashian
10.1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - Nadeem_Walayat
Last 7 days
Bitcoin Hits $6,000, $100 Billion Market Cap As Helicopter Ben and Jamie Demon Warn The End Is Near! - 22nd Oct 17
Time for Caution in Gold Miners - 22nd Oct 17
“Great Rotation” Ahead; Will it Be Inflationary or Deflationary? - 21st Oct 17
The Trigger for Volatility, Rates and the Next Crisis - 21st Oct 17
Perks to Consider an Agent for Auto Insurance - 21st Oct 17
Emerging Megatrends Hurting Consumers - 21st Oct 17
A Catalyst of the Stock Market Bubble Bust - 21st Oct 17
Silver Stocks Comatose - 21st Oct 17
Stock Investors Ignore What May Be The Biggest Policy Error In History - 20th Oct 17
Gold Up 74% Since Last Stock Market Peak 10 Years Ago - 20th Oct 17
Labour Sheffield City Council Employs Army of Spy's to Track Down Tree Campaigners / Felling's Watchers - 20th Oct 17
Stock Market Calm Before The Storm - 20th Oct 17
GOLD Price Creates Bullish Higher Low - 20th Oct 17
Here’s the US’s Biggest Vulnerability in NAFTA Negotiations - 20th Oct 17
The Greatest Investing Lesson Learned from the 1987 Stock Market Crash - 20th Oct 17
Stock Market Time to Go All-in. Short, That Is - 19th Oct 17
How Gold Bullion Protects From Conflict And War - 19th Oct 17
Stock Market Super Cycle Wave C May Have Started - 19th Oct 17
Negative Expectations, Will the Stock Market Correct? - 19th Oct 17
Knowing the Factors Affect your Car Insurance Premium - 19th Oct 17
Getting Your Feet Wet In Crypto Currencies - 19th Oct 17
10 Years Ago Today a Stocks Bear Market Started - 19th Oct 17
1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - 19th Oct 17
Virgin Media Broadband Down, Catastrophic UK Wide Failure! - 19th Oct 17
The Passive Investing Bubble May Trigger A Massive Exodus from Stocks - 18th Oct 17
Gold Is In A Dangerous Spot - 18th Oct 17
History Says Global Debt Levels Will Lead to Another Crisis - 18th Oct 17
Deflation Basics Series: The Quantity Theory of Money - 18th Oct 17
Attractive European Countries for Foreign Investors - 18th Oct 17
Financial Transcription Services – What investors should know about them - 18th Oct 17
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

Why The Super Bearish Gold and Silver COTs Portend a Plunging Euro...

Currencies / Euro Nov 01, 2015 - 07:31 PM GMT

By: Clive_Maund

Currencies

It was ironic that when Dr Watson complained to his companion Sherlock Homes that he had a stomach ache, Holmes clarified the situation at once by saying "Alimentary, my dear Watson". More generally, the legendary sleuth of Victorian London would make light of his accomplishments after solving cases that baffled the police, by remarking "Elementary, my dear Watson". Doubtless this expression was deeply irritating to his arch-enemy Moriarty.

Today we are going make light of what to other analysts may be abstruse and possibly baffling, by "joining the dots" to demonstrate the linear connection between an extremely bearish silver COT and an imminent crashing euro, so that by the conclusion of this article, you, dear reader, will have a clear understanding of what is set to unfold, and will be able to explain to other confused souls that it really is elementary.


We will start by looking immediately at our most important piece of evidence, the latest silver COT, which is very bearish indeed, because the Commercials now have their biggest short position since 2008. This makes a big drop in silver very likely soon, and it is expected to make new lows, probably heading to the $10 area. Doubt that this is true? – then look at what happened to silver over the past year on its 1-year chart placed directly below the COT chart, when the Commercials had a high short position – I rest my case.

Silver CoT

Silver 1-Year Chart

Next we look at gold’s latest COT, with its 1-year chart placed directly below for comparison. It’s similar, although not so extreme as silver, but the conclusion is the same.

Gold CoT

Gold 1-Year Chart

So, gold and silver are going to drop a lot – what does that mean for the dollar? – it means the dollar is going to rally, and rally a lot, and on its 3-year chart we can see that it is in position to do just that. Following its dramatic rally from July of last year to March of this year, the dollar index has been stuck in a large triangular trading range, which could be either a consolidation pattern or a top. It has already started to break out upside from this pattern on the Fed meeting this past week, and it wouldn’t take much to swing its moving averages into bullish alignment. If it succeeds in breaking out upside from this pattern and following through, it is likely to mount an advance of similar magnitude to the one preceding the consolidation pattern, which means it will target the 114 – 116 area, a big move indeed.

US Dollar 3-Year Chart

COTs for the US dollar are in middling ground, but have certainly eased enough to permit a big advance, as shown by the latest Hedgers chart, which is a form of COT chart...

US Dollar Hedgers Position

If the Fed starts an interest rate rise cycle, it would of course bolster the dollar, but as we know there is precious little scope for them to do so without triggering an economic cataclysm, because of the frightening levels of debt that now exist. So what else could cause the dollar index to rise? the euro, that’s what. Don’t forget that the dollar index is some 57% composed of the euro, and with Europe threatening to fall to bits, crippled as it is by ruinous debts and with political differences between member states being aggravated by differences over how to handle the massive influx of migrants, the euro is really on the ropes and looks like it is starting another major downleg on its road to eventual oblivion. With regards to the migrant crisis, Europe is reaping what it has sown, by joining forces as an obsequious sidekick with the US in its destabilizing rampage around the Mid-East. It’s alright for the US, the migrant’s rubber boats can’t make it across the Atlantic, but they sure can make the 20 km crossing from Bodrum to Kos.

Let’s look at the latest euro chart now. As we just saw, the dollar index is starting to break out upside to start another major upleg, so we can expect to see the opposite occurring in the euro, a major downleg just starting, and that is exactly what we do see. With Europe blighted by huge debts, Germany weakening rapidly as its export markets shrink, its reputation tarnished by the VW scandal, and beset by hordes of immigrants with their hands out so that it looks set to fall to the ground, a constitutional crisis looms for the EU, especially if Britain votes to leave, and the euro is threatened with extinction, so it is not hard to see why the next downleg in the euro could easily be as bad as the one from the Summer of 2014 through the Spring of this year, and if it is, we are looking at the euro dropping to 80 or lower.

Euro 3-Year Chart

If the euro fell this far it means that we will see another huge ramp in the dollar index, which would be expected to trigger a big drop in both gold and silver to new lows. Now you should be able to grasp why the Commercials are piling on the gold and silver shorts – it’s elementary, my dear reader.

If a big ramp in the dollar ensues it is logical to suppose that many other commodities, apart from gold and silver, will get whacked down again. So let’s take a look at copper and its COT as we would expect this to get hit too. As we can see on the latest COT chart, the Commercials have been "jumping ship" in recent weeks, scaling down their long positions to a very low level. The last time this happened, back in May, a severe downtrend followed as we can see on copper’s 1-year chart, shown directly below the COT chart.

Copper CoT

Copper 1-Year Chart

On clivemaund.com we are not going to stand around staring blankly as gold and silver drop away to new lows. This is an opportunity to make big gains on the short side in the PM sector, and we will be looking at a range of vehicles which we can use to do just that, some of which we have already bought over the last week or two.

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2015 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife