Best of the Week
Most Popular
1.The Brexit War! EU Fearing Collapse Set to Stoke Scottish Independence Proxy War - Nadeem_Walayat
2.London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - Nadeem_Walayat
3.The BrExit War, Game Theory Strategy for What UK Should Do to Win - Nadeem_Walayat
4.Goldman Sachs Backing A Copper Boom In 2017 - OilPrice_Com
5.Trump to Fire 50 US Cruise Missiles To Erase Syrian Chemical Attack Air Base, China Next? - Nadeem_Walayat
6.US Stock Market Consolidation Time - Rambus_Chartology
7.Stock Market Investors Stupid is as Stupid Goes - James_Quinn
8.Gold in Fed Interest Rate Hike Cycles- Zeal_LLC
9.The BrExit War - Britain Intelligence Super Power Covert War With the EU - Nadeem_Walayat
10.Marc Faber: Euro to Strengthen, Dollar to Weaken, Gold and Emerging Markets to Outperform - MoneyMetals
Last 7 days
Bifurcated US Stock Market - 29th Apr 17
Damn the Deficits, Huge Trump Tax Cuts Ahead! - 29th Apr 17
Gold Hostage to Stocks - 29th Apr 17
Warren Buffett Hates Gold… But Here’s Five Reasons You Need To Own It - 29th Apr 17
Stock Market Sentiment, Re-Fueled Along the Way - 28th Apr 17
Calling out the Central Bankers - 28th Apr 17
Fed's Third Inetrest Rate Hike and Gold - 28th Apr 17
USD/CAD - Invalidation of Breakout or Further Rally? - 28th Apr 17
What Happened to the Stock Market Crash Experts Were Predicting - 28th Apr 17
Earth Overshoot Day - Human Population Growth - 28th Apr 17
Misunderstanding GDXJ: Why It’s Actually Great News For Junior Miners - 28th Apr 17
What Makes Bitcoin Casinos So Remarkable? - 28th Apr 17
Financial Markets Improvised Explosives - 27th Apr 17
More Stock Market Short-Term Uncertainty As Stocks Get Close To Record High - 27th Apr 17
Elliott Wave Theory: Is Elliott’s Theory Enough? - 27th Apr 17
Billionaire Investor Paul Tudor Jones Says Stock Market Valuation Is “Terrifying” And He Is Right - 26th Apr 17
The Great BrExit Divides - Britain, USA and France - 26th Apr 17
10 Facts That Show Our Taxes Are Worse Than You Thought - 26th Apr 17
What Trump’s Next 100 Days Will Look Like - 26th Apr 17
G20: SURPASSING THE 2nd GLOBAL STEEL CRISIS - 26th Apr 17
What A War With North Korea Would Look Like - 25th Apr 17
Pensions Are On The Way Out But Retirement Funds Are Not Working Either - 25th Apr 17
Frank Holmes : Gold Could Hit $1,500 in 2017 Amid Imbalances & Weak Supply - 25th Apr 17
3 Reasons Why “Spring Forward, Fall Back” Also Applies To Gold - 25th Apr 17
SPX may be Aiming at the Cycle Top Resistance - 25th Apr 17
Walmart Stock Extending Higher - Elliott Wave Trend Forecast - 25th Apr 17
Google Panics and KILLS YouTube to Appease Mainstream Media and Corporate Advertisers - 25th Apr 17
Gold Price Is 1% Shy of Ripping Higher - 25th Apr 17
Exchange-Traded Funds Make Decisions Easy - 25th Apr 17
Trump Is Among The Institutionally Weakest National Leaders In The World - 25th Apr 17
3 Maps That Explain the Geopolitics of Nuclear Weapons - 25th Apr 17
Risk on Stock Market French Election Euphoria - 24th Apr 17
Fear Campaign Against Americans Continues Nuclear Attack Drills in New York City - 24th Apr 17
Is the Stock Market Bounce Over? - 24th Apr 17
This Could Be One Of the Biggest Winners Of The Electric Car Boom - 24th Apr 17
Le Pen Shifts Political Landscape- The Rise of New French Gaullism  - 24th Apr 17
IMF Says Austerity Is Over - Surplus or Stimulus - 24th Apr 17
EURUSD at a Critical Point in Wave Structure - 23rd Apr 17
Stock Market Grand Super Cycle Overview While SPX Correction Continues - 23rd Apr 17
Robert Prechter Talks About Elliott Waves and His New Book - 23rd Apr 17
Le Pen, Melenchon French Election Stock, Bond and Euro Markets Crash - 22nd Apr 17
Why You Are Not An Investor - 22nd Apr 17
Gold Price Upleg Momentum Building - 22nd Apr 17
Why Now Gold and Silver Precious Metals? - 22nd Apr 17
4 Maps That Signal Central Asia Is at Risk of War - 22nd Apr 17
5 Key Steps For A Comfortable Retirement From Former Wall Street Trader - 22nd Apr 17

Market Oracle FREE Newsletter

Why 95% of Traders Fail

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

© 2005-2016 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