Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

COT Report Increasingly Bearish for Gold

Commodities / Gold & Silver 2009 Sep 13, 2009 - 06:35 PM GMT

By: Clive_Maund

Commodities

Best Financial Markets Analysis ArticleInvestors will much more readily forgive a market commentator who is bullish and wrong than one who is bearish and wrong. This explains why, with gold tantalizingly close to breaking out to new highs, bearish or cautious articles on the yellow metal are few and far between. Amongst the bullish commentaries we have Jim Willie’s "13 reasons for major Gold Breakout" and the "A light goes on in Russell's brain" by the venerable Richard Russell.


On www.clivemaund.com we are pragmatists whose overriding concern is to make money, or at least avoid losing it, and whilst we are well aware of the bullish case for gold and the convincing upbeat arguments of many writers, we also keep a lookout for bearish signals, and there are some important ones at this time. As a result of these mixed signals we have remained perched on the fence in recent weeks, during a period in which gold has broken out upside from an important large triangular pattern, but has not thus far succeeded in breaking out to new highs.

Does this fence sitting mean that we have foregone the opportunity to garner profits in this market? – no sir, it does not. We very rarely consider “straddle” options because of the doubled decay burden of the time value of holding both Calls and Puts, but having called the breakout by gold from its Triangle days before it occurred, we decided to boldly go (go boldly?) and load up with heaps of cheap Calls and Puts in gold itself on the NYMEX and in iShares Comex Gold Trust, SPDR Gold Trust and Newmont Mining, with an eye to using the Puts to protect long positions in gold stocks generally as well. The trade worked out perfectly as we offloaded all the Calls for a whacking great profit into strength early last Tuesday morning when gold formed a short-term peak, and we hung on to the Puts. The gains on the Calls vastly exceeded the losses on the Puts, and if things now turn sour we might easily recoup our losses on the Puts and even end up gaining.

In any event we now have a heap of cheap Puts free and gratis which go at least some way to insulating our stocks positions from losses. The other approach that we employ to maximize upside gearing and minimize downside is to go with the stocks of younger dynamic mining companies that are either going into production or close to doing so, and thus in the accelerated growth phase of their stock lifecycle, avoiding the lumpen old monster stocks that matured a long time ago. We should not forget, however, that investors and speculators will dump everything indiscriminately over the side, regardless of quality or intrinsic value, if a broad based selloff sets in.

Now we will take a fresh look at gold in the light of the latest price action and COT data. On the 3-year chart we can see how gold duly broke out upside from its large triangular pattern and rose sharply, which was the scenario assigned the higher probability. With all moving averages in bullish alignment it’s a case of “so far, so good” but we note that it is now increasingly overbought and has risen into the zone of very heavy resistance approaching its highs. Much more worrying for gold bulls is the explosion in the Commercials’ short positions, which have risen “off the scale” – we will look at this a little later. This is a good point at which to ask ourselves the question – “What is the scenario that would cause maximum damage to the average PM sector investor, and at the same time funnel his resources most efficiently into the pockets of Big Money?” This is an easy one to answer – it would be a gold breakout to new highs that would trigger a wave of buy stops and lead to many chart followers and a broad swath of investors piling in. Having “lobster potted” the majority Big Money could then engineer a savage reversal and plunge and you had better believe that they have got the clout to do it – this is the game they played with copper last year.For this reason there is no way we are selling our Puts, which we ended up getting for free anyway, and we will roll them if they expire.

On the 6-month chart we can examine recent action in more detail. After the sharp breakout from the Triangle, gold rose strongly for another day before the rally was slowed considerably by the heavy resistance approaching the highs. We sold our Calls at the top of the “shooting star doji” in the early trade last Tuesday. A bullish hammer appeared after some reaction on Thursday that was followed by gains on Friday, however, the price did not rise above Tuesday’s intraday high. Gold is getting into critically overbought territory on its RSI indicator with its MACD showing an increasingly overbought condition, and as is very obvious on its 3-year chart, it is in a zone of heavy resistance. These factors in themselves do not preclude a breakout to new highs soon, although they do suggest that a period of consolidation first would be beneficial. However, what does make it look a lot less likely short-term is the COT structure, which according to past correlations now looks decidedly bearish.

On www.clivemaund.com we don’t subscribe to the David versus Goliath nonsense. This is because in our experience Big Money almost always wins, which is hardly surprising given their extensive network of connections throughout the banking system, governments, the markets and policymaking in general – they know what’s going down and when. Even when it looks like they are going to lose, as during the banking crisis of last year and early this year, they simply push the bill for the consequences of their excesses onto everybody else. We therefore aim to align ourselves with them as much as possible. You have as much chance of winning when you oppose them as a hedgehog has of making it across a freeway south of Los Angeles.

Bearing this in mind the latest COT chart is, or should be, disconcerting for bulls, for as we can see the Commercial short position exploded according to the latest data, which does not include the last 3 days of last week, so it can be presumed to have climbed to even higher levels as gold finished the week at a closing high. This means one of two things – either Big Money are going to have their heads handed to them on a plate as gold breaks out and rockets higher (historically unlikely), or the average investor in the PM sector, egged on by the plethora of bullish gold reports doing the rounds, is going to end up as roadkill before much longer, which could involve a false breakout to new highs and a concomitant explosion of Commercial short positions to an even greater extreme.

The silver COT chart is even more extreme. Our tactics are therefore generally to remain long but to protect positions either with close stops, which before the Triangle breakout were just below the support at the apex of the Triangle for, but should now be raised, or with out-of-the-money Puts. This position will be reviewed if the COT structure becomes even more extreme. An additional factor that needs to be taken into account by PM stock investors is the increasing likelihood of the broad stockmarket breaking lower as it is now approaching the apex of a bearish Rising Wedge pattern and the time of year when investors are most prone to get jittery.

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2009 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

© 2005-2019 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