Gold was under pressure for the entirety of the session today but seemed to especially weaken into the late afternoon hours as the US equity markets kept pushing higher and went out near the highs of the day. That more than likely will translate into additional downside followthrough in Asian trade Sunday evening. Where it goes after that will depend on whether or not dip buyers show up.

Let me show you why I am concerned.

First of all, on this TWO HOUR CHART, you can see that there was a huge spike in volume last Friday during which gold ran to $1280. Recall that was the day that the payrolls data was released. Yesterday, the day of the announcement by the ECB of additional stimulus measures to be implemented, gold spiked higher but then faded. Notice that the volume was lower. That is a warning that bulls should not ignore.

Now, as long as the lower two support lines hold firm, there is no need for concern. If those lines give way and if price does not recover above them right away, there is the real danger of some significant long side liquidation occurring. Why? Look at this chart of the hedge fund outright positions, both shorts and longs.

This is the highest number of longs that they have carried in thirteen months.

Over against this is the following chart.

This is the largest net short position of the Swap Dealers in the same thirteen months while the Commercials have the largest net short position in 37 months.

On a percentage basis, the combined short positions of the Commercials and the Swap Dealers remain near levels commensurate with interim tops. Also, the combined long position of the large specs is also quite elevated.

This is important – I have not been as concerned about these high levels of spec longs in the market as I would normally been otherwise for the one reason that the reported holdings in GLD have steadily increased during the entire time this imbalance has existed. That development has been a signal that gold demand in the West remains rock solid.

As long as this GLD does not falter, specs will hang tough on the long side. If however, they were to see any faltering of demand, as evidenced by a fall in the reported holdings, plus a downturn in the HUI/Gold ratio, we could see some nervous longs head for the exits.

We’ll see what we get Sunday evening but unless there is something that changes over the weekend, I expect to see gold open weaker Sunday evening here in the West. Much will depend on whether or not sentiment towards risk remains like it did today ( Friday).

Dan Norcini

http://traderdan.com

Dan Norcini is a professional off-the-floor commodities trader bringing more than 25 years experience in the markets to provide a trader's insight and commentary on the day's price action. His editorial contributions and supporting technical analysis charts cover a broad range of tradable entities including the precious metals and foreign exchange markets as well as the broader commodity world including the grain and livestock markets. He is a frequent contributor to both Reuters and Dow Jones as a market analyst for the livestock sector and can be on occasion be found as a source in the Wall Street Journal's commodities section. Trader Dan has also been a regular contributor in the past at Jim Sinclair's JS Mineset and King News World as well as may other Precious Metals oriented websites.

All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. The information on this site has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. Accordingly, investors should not act on any information on this site without obtaining specific advice from their financial advisor. Past performance is no guarantee of future results.

Dan Norcini Archive

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

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.