Following the events of yesterday, it seems wise this morning to take an
in-depth look at the charts in order to discern what moves The Banks may take
next in the hope of stemming this rally and reversing the trends.
Let's start with Comex Digital Gold. It has been in an UPtrend since July
10 and this rally has carried it $150 or about 12.5%. In doing so, The
Commercials on the CoT have increased their NET short position by 182,000
contracts and, specifically, the 24 Banks of the Bank Participation Report
have doubled their NET short position, going from 104,748
contracts NET short in July to 213,746 NET short last week.
This places the CoT in its "worst" position since last September
and this BPR reveals the largest NET short position on record. Therefore, you
KNOW that The Banks will do just about anything at this point to reverse the
trend and begin flushing The Specs back out of paper gold. Though they are
clearly capable of pulling this off, it may take them a while to do it. Why,
you ask?
For CDG, it's all about the moving averages. We noted early last week that
CDG's 50-day had bullishly crossed UP and through both its 10-day and 200-day
MAs. This is a very bullish trend indicator and, most importantly, it sets
the Spec HFTs into a "buy the dip mode". You can see this playing
out already when you look at the daily chart.
Also last week, we began to discuss the significance of the $1331 level as
support in any pullback. This was the level of resistance and then support in
late August so we hoped/expected that same action on any pullback. And look
what has happened thus far this week! Even though the all-important USDJPY is
up another 50 pips today and pressing against 110, Comex gold is hanging firm
at....$1332! For us, this is clear evidence of the HFTs buying the dip.
And here's the big challenge for The Banks. Check where you can find those
MAs. The closest is the 50-day but it's all the way down near $1280. The
Banks are not going to be able to flip the Spec HFTs until, at a minimum, the
50-day is violated to the downside. So, this is why we can say "it may
take a while" for The Banks to really generate the downside momentum
that will flush The Specs in the same old, wash-and-rinse pattern.
This doesn't mean that a massive raid can't happen. What is DOES mean,
though, is that aggressive traders should have plenty of warning and can use
this time to hedge and prepare. Again, use the chart below as a guide and
watch that rising 50-day closely.
Now let's look at Comex Digital Silver. It, too, is holding the support
area that we identified last week. This support is quite clearly the most
recent highs near $17.90 last June.
Like CDG, Comex Silver has seen its own rally over the past two months,
moving up a full $2 or about 13%. Also like CDG, the silver
"Commercials" have fought this rally by increasing their NET short
position from 21,900 contracts on July 18 to 79,700 contracts last Tuesday.
Therefore, you know that JPM et al would just LOVE to smash price and force a
Spec exit but they, too, are going to need some downward momentum to get the
ball rolling.
As you can see below, the MAs for Comex silver are not in the same bullish
configuration as Comex gold. Therefore, the very clear target for The Banks
is the 200-day moving average found today near $17.28. They'll hope to break
this level on a closing basis sometime soon.
And the reason for trying to break the 200-day is clear. On the chart
below, you can see four instances in just the past twelve months
where price was broken at the 200-day and a steep, Spec-rinsing decline
followed. This is easy money for the colluding Bank trading desks so you can
be certain that they are salivating at the opportunity to pull this same
trick again!
OK, as I close, I've still got $1331 and $17.92 so our
initial support levels are holding. Let's hope this continues and a rebound
follows.
However, you must be aware that The Banks are still in charge
and nothing in their behavior suggests that they are "on the run"
or "losing control". Therefore, plan and trade
accordingly.
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Our Ask The Expert interviewer Craig Hemke began his career in financial
services in 1990 but retired in 2008 to focus on family and entrepreneurial
opportunities. Since 2010, he has been the editor and publisher of the TF
Metals Report found at TFMetalsReport.com, an online community for precious
metal investors.
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The views and opinions expressed in this material are those of the author
as of the publication date, are subject to change and may not necessarily
reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the
accuracy, completeness, timeliness and reliability of the information or any
results from its use.