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In the latest Gold and Silver Market updates, posted last weekend, the
view was expressed that an intermediate top was forming gold and silver, not
a bull Flag as some were suggesting, and the latest COT data not only
confirms this view, but suggests that a severe drop is imminent, and it
already started in silver on Friday. Fortunately we exited most of our long
positions in the sector, many at a handsome profit, over the past 2 weeks,
having spotted the danger.
The latest 1-year chart for gold is - or should be - alarming for those
still long the sector. It shows gold churning having hit a target after a
parabolic slingshot move that resulted in it becoming heavily overbought. Now
it is vulnerable to a reaction which the latest COTs suggest will be heavy.
Breakdown from the parabola will likely lead to a dramatic plunge.
 
The latest gold COT chart, which may be directly compared to the 1-year
gold chart above, because it also goes back a year, shows that Commercial
short and Large Spec long positions exploded higher last week, the
culmination of a multi-week exponential ramp. As the Commercials are
collectively always right and the Large Specs wrong, this means trouble. This
is characteristic of an important top, and gold is now expected to plunge,
probably immediately.
Click on chart to popup a larger clearer version.
The long-term 6-year chart provides additional clues regarding why gold's
sharp advance halted when it did - it had arrived at the upper boundary of
the broad downtrend channel shown.
Turning to silver, the picture is considerably weaker, and is in fact
dismal, although longer-term this should not be a cause for depression, as
silver is normally weak compared to gold at this stage of the cycle. On its
1-year chart we can see that the recent rally was weak compared to the rally
in gold - it did not even manage to rise much above its 200-day moving
average, which did not turn up, and it failed to break out of the downtrend
channel shown. Now it is breaking lower again, and latest COTs, which we will
come to in a moment suggest that the reaction now starting will be severe,
and take it to the lower boundary of the channel as a minimum downside
objective.
The latest silver COTs are simply frightful, with the Commercials having
built up a 7-year record short position. This was already the case last week,
and this week it's even worse. These COTs suggest that silver is about to
take a severe beating.
Click on chart to popup a larger clearer version.
The long-term 6-year chart reveals that silver's latest rally was in the
end nothing more than "a flash in the pan" within its ongoing
long-term downtrend, and the latest COTs point to new lows for silver soon.
Trying to unearth a fundamental explanation or reasons for what we are
observing here is, as usual, a waste of time. Normally, by the time you find
out, it's too late to do anything about it. Asked to speculate about possible
explanations two things come to mind - the possible emergence soon of a
coordinated global QE barrage that results in a Happy Days are here again
mentality, as systemic stress eases for a while and the stockmarket rallies
on the prospect of improved liquidity, which is what we have already observed
as likely in yesterday's update on the site Broad Market update
- Belay that Shorting Plan, and a realization by the "mad as
hatters" Neocons, who are possessed by a drive to overpower Russia then
China and take over the world, that starting a thermonuclear exchange with
Russia over Syria is perhaps not such a good idea, since the Nuclear Winter
that might result would probably affect them too. There is a tentative
ceasefire in Syria at present, and hopefully the tensions will ease somewhat,
which would of course be a negative for gold and silver.
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