Speculators Throw in the Towel on Gold

Mike Mish Shedlock

Long Liquidation: Large specs reduced long gold bets and increased short gold bets. Small specs increased longs & shorts

The above chart is from 321Gold. It matches the CTFC Report.

Jump in Shorts

Last Week = (101,695 + 41,554) minus the jump (13,396 + 11,449) = 118,404

Increase in shorts = (13,396 + 11,449) = 24,845

Percentage Increase = 24,645 / 118,404 = 20.98%

Long Liquidation

Frequently one hears comments like "commercial reduced their short positions".

While arguably accurate, it conveys the wrong idea.

Commercial traders, except for producers who do sell short, simply take the opposite side of the trade. The commercial traders are not net short, they hedge.

Thus it is a more accurate summation to call this for what it is: Long liquidation. Gold longs are increasingly unconvinced and are throwing in the towel.

Like Hickey, I believe speculators throwing in the towel and betting against gold is ultimately bullish.

Hickey notes "The shorts have to cover." It's important to note that applies to speculators, not producers or hedgers.

Mike "Mish" Shedlock

Comments (19)
TheLege
TheLege
(deleted message)

When the margin calls flood in, everything (including the good stuff) gets liquidated.

No. 1-19
truthseeker
truthseeker

Gold will go down as long as interest rates keep moving up. We’ve got a real problem with these guys at the Fed who seem like they want to keep raising rates no matter what happens. Maybe they want us to remember Paul Newman in Cool Hand Luke “What we have here is a failure to communicate”! Or maybe they told the Pope, for heavens sake, to start criticizing derivatives such as credit default swaps, to comfort the world’s credit markets. Personally I’ve pretty much given up trying to figure out what is going to happen next, so I’ll just leave that up to Mish.

CautiousObserver
CautiousObserver

No major banking crises in the immediate future, then?

hmk
hmk

I think the theory is that as rates go up the dollar will strengthen and thus gold declines in dollar terms. In the 70s gold went up as rates went up so who knows. During a financial crisis all assets most likely will decline.

Realist
Realist

I agree with hmk on this theory. There is theory, then there is reality. Trying to predict the price of gold, is something I will leave to Mish (as truth seeker says).

Bam_Man
Bam_Man

Gold is at multi-year highs priced in many currencies. (Turkish Lira, Argentine Peso, Brazilian Rial, Indonesian Rupiah, Iranian Rial, Mexican Peso

  • among others).
niceconstable
niceconstable

hmk re theory

niceconstable
niceconstable

@ Bam_Man gold priced in other currencies...
Gold is pretty much inversely correlated to USD.
Gold gets liquidated by countries when they need USD. The buying of USD bids up its price and the selling of gold bids down the price of gold.

Greggg
Greggg

I was waiting for it to go down to the 900-1000 range. Just gonna wait and see this time.

truthseeker
truthseeker

Booskar NO it’s not proven, yet as interest rates move up along with the dollar, gold and commodity prices will fall most of the time imo. But Bam Man listed a number of countries where gold is at multi year highs. These and other countries have borrowed billions of dollars to help grow their economies. Now we have shortage of dollars, and the loss of dollar liquidity throughout the world will cause a severe financial crisis at some point, and gold may be the only place to hide with this set of circumstances imo.

hmk
hmk

One thing I am not so sure of is that as a store of value or price appreciation, will they actually be useful during a crisis. Gold and silver are not being used as currency in
places like Venezuela. Currently in a shtf situation of which Venezuela is the perfect example they are bartering with goods like toilet paper and soap or services.

niceconstable
niceconstable

The real problem is the foreign country banks that made the dollar loans to their domestic markets. They are having dollar funding problems. Only their central banks can help them by trying to acquire USD. That will drive the dollar higher. The ensuing flow of dollars out of the US will create funding pressure here. I don't see US Banks having much of a problem because of the FRB being able to provide liquidity to our banks. More the problem is economic slowdown as banks will not have the ability to lend as much.

hmk
hmk

Oh oh don't admit that or else you'll have the officials at your door. Oh wait Obama isn't president anymore. BTW 22 cal is supposed to be one of those rounds tradable and its cheap again now that the gun salesman of the century has left office.

truthseeker
truthseeker

niceconstable if more dollars are needed to support emerging markets, this will reduce liquidity probably causing the dollar to appreciate even more as you suggest, which will hammer the growth of our export markets.Then you suggest our banks need not worry since the FRB will provide liquidity if any problem develops.Well right now the Fed is in the process of raising rates~QT~and allowing the 4 trillion of treasury and mortgage backed securities to slowly roll off its balance sheet. So what u suggest it seems, is a complete reversal from the Feds current strategy for a move to QE~4.

Carl_R
Carl_R

This article is exactly right. The commercials simply hold the opposite position to the speculators, whatever that may be, and then hedge to eliminate risk.

Wagner___
Wagner___

Time for Max Keiser to start a new promo "Crash JP Morgan, Buy gold!"

KidHorn
KidHorn

I think the recent weakness is due to higher interest rates propping up USD, but this is temporary. There's a limit to how high interest rates can go before causing a recession and I think we're close to that limit.


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