Gold Market Update - COT Report Bearish

By: Clive_Maund

In the last update, published on or after 16th April, we expected gold to drop back from the $690 area due to the bearish COT structure, and that is what has happened. The latest COTs are not good news for bulls, with the Commercial shorts still at a high level - high enough to preclude a significant advance in the near future, and to maintain the risk of a substantial decline.

On the 2-year chart we can see how gold is being shepherded higher by its long-term 200 and 300-day moving averages, but as it lacks the oomph to get on with it and break out above last year's highs around $730, it is now rolling over and being forced into an increasingly confined space between the trendline shown, or at least the moving averages, and the overhead resistance at and towards $730. The situation is clearly becoming increasingly tight which must force a breakout one way or the other soon, and sadly for the bulls, the latest COT figures show that the risk right now - or as of 3 days ago, as the COT figures are released 3 days late in order to give big money and insiders the edge - is to the downside, notwithstanding any brief rally.

The fact that the April high was only a little above the February high is also a sign of weakness. What we will need to see in coming weeks, or over the next month or two, as a prerequisite for a gold breakout above $730, is a significant improvement in the COT picture, with a much lower Large Spec long and Commercial short position. In the meantime, traders should be prepared for surprises to the downside. If gold does break below first the trendline and then its long-term moving averages, it will at best lead to a large extended trading range developing between the strong support in the $550 - $570 area and the resistance at last year's highs around $730. At worst it will mean that a Double Top has formed and the bull market is over.

The COT chart shows the extent of the Commercial short position and the Large Spec long position that are thought to be at a level that will prohibit any significant advance in the near future while at the same time making downside risk considerable. Traders should orient themselves accordingly. Enrico Orlandi, in an article published recently on the 3rd May, made the following observation about the Commercials: “What I'm trying to say here is that people buy gold for the wrong reasons. If your reasoning is wrong, then it's almost a sure bet your timing will be wrong. Enter the Commercials: very large, sophisticated, smart, unemotional traders who make their living off of people with faulty reasoning. And they've got it down to a science. They suck you in, clean you out, and send you home packing and a lot poorer for the experience.”

The writer understands that the foregoing makes fairly depressing reading for gold and gold stock bulls, but does this mean you should fold your tent and call it a day? Unless you insist on buying great lumpen stocks that slavishly follow the indices, the answer is definitely not! As many of you are aware, we haven't been letting the grass grow under our feet, there are always opportunities out there, and although not all of our stocks are up, and some are down although mostly not by much, we have recently done very well with stocks like Bactech Mining , Baja Mining , Bonaventure , Golden Phoenix , Industrial Minerals , Silvermex Resources , Sundance Resources , United Bolero , Vangold , especially when one considers that these gains were racked up very quickly. ,

By Clive Maund
CliveMaund.com

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.

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.