Washout: Big and Small Specs Barely Net Positive on Gold as Shorts Pile On

Gold Sentiment is in the Washout Phase.

The Commitment of Traders (COT) reports come out on Friday. They reflect futures positioning as of the prior Tuesday. Bearish sentiment is now extreme. Speculators are the least-long in gold futures that I can remember. Here is the full chart from CotPriceCharts.

Gold Spec Washout

Washout Report

On May 15, Sprott Money reported The Gold Spec Washout Begins.

Here's a brief and dramatically oversimplified explanation of the process...

In their role as "market maker", the Banks issue the contracts to the Specs. In COMEX gold, this is almost always a Spec taking the long side and a Bank taking the short side. From time to time, sentiment crashes, and the Specs rush to the exits. This selling of Spec longs allows The Banks to take the other side and buy back their shorts. This is what you are seeing today. At the end of the process, The Specs have generally lost, The Banks have generally won and the whole game resets to be played again.

By the time this current process ends (at most likely near $1,275 but possibly $1,235), the Large Specs will be very nearly fully "washed out", with a net long position of 60,000 contracts or less.

If price indeed "fakes out" everyone by crashing to $1,235, the Large Specs may actually be briefly seen as neutral or even net short, similar to the current CoT structure in COMEX silver. And at that point, the stage would be set for a MASSIVE rally, and this is where fortitude becomes your greatest ally.

Six Month Rally?

John Rubino reports Spectacular Gold COT Report: Prepare For A Huge Six Months.

In his report Rubino says "If gold is set to pop, what about silver? Again, if history is any guide gold popping means silver rocketing."

Yet, the same thing may have been said many times over the past few years. Moreover, silver is an industrial metal and may not fare well in an economic slowdown.

That said, I side with those who say "silver is cheap". But I also suggest "gold is safer".

Strong Buy!

Mike "Mish" Shedlock

Comments (8)
No. 1-5
Six000mileyear
Six000mileyear

There are some others using COT in conjunction with technical analysis looking for a multi-month rally in gold.

shamrock
shamrock

Hope springs eternal. Gold is done, looking at another 10 or 20 years of 0 or negative return.

KidHorn
KidHorn

Everything I've read states the cost of mining gold goes up every year. So unless there's a huge discovery of easily mine-able gold, it seems like a good long term investment.

Realist
Realist

This continual focus on a single asset class like gold or CDs is perplexing. Many of the world’s well-managed, broadly diversified pension funds have earned 8-12% per year for the last 20-30 years. I suspect that many Americans ignore this fact because most US pensions are so poorly run. These proven investment strategies are out there for all to see. Yet even reasonably intelligent people ignore them and stick to their “pet” stategies, like “buy gold”.

Bam_Man
Bam_Man

We are in the rapidly fading "Twilight of the Pure Fiat Money Era" and nobody wants to touch Gold with a ten foot pole. Truly amazing.