A Gold Smackdown Reversal On Friday, Rebound Today, What’s Going On?

By Mish Shedlock of MishTalk
Monday, April 15, 2024 9:58 PM EST

Chart courtesy of Investing.Com, annotations by Mish

Margin Call Theory


It could be margin calls but being stopped out of a position seems more likely.

A friend emailed me over the weekend congratulating the shorts on a manipulative smackdown.

If there was manipulation at all, it was manipulation higher not lower.

The market makers know where the stops are or go fishing for them. The action on Friday had little to do with overwhelming demand or shorts profiting.

After shorts were stopped out, at a loss, there was a vacuum of buyers and the price plunged back to roughly where the day started.

As I type, Gold is up $28 on the day topping $2,400. That would make another closing high.


Gold COT Positioning

Gold COT Positioning Courtesy of COTbase


COT stands for Commitment of Traders. Commodity traders are requited to post their positions to the Commodity Futures Trading Commission (CFTC).

The date by COTbase is incorrect. The reports come out on Friday, in this case on 2024-04-12 but reflect the positions held the prior Tuesday, in this case 2024-04-09.

The positions are as of April 9 not April 12.

I prefer the disaggregated charts because “commercials” includes both buyers and sellers. I cannot complain too loudly, I suppose, that chart is free. So let’s go look at the CFTC report for the week.


Gold Disaggregated Report

(Click on image to enlarge)


As you can see in the above chart, the data is as of April 9, not April 12 although it is reported on the 12th.

The CFTC explains: The Disaggregated COT report increases transparency from the legacy COT reports by separating traders into the following four categories of traders: Producer/Merchant/Processor/User; Swap Dealers; Managed Money; and Other Reportables. The legacy COT report separates reportable traders only into “commercial” and “non-commercial” categories.

Disaggregated COT reports started on September 4, 2009.


Commercials

The commercials consist of the producers (gold mining companies who are short, this is how they sell their gold), Merchants (those who create gold coins and jewelry) who are long, and swap dealers (market makers) who take the other side of trade.

For every long there is a short. Swap Dealers take the other side of trades netting things to zero. Lumping all of this together as commercials is not exactly revealing.


Managed Money and Other Reportables

Managed money is a specify type of speculator, often a hedge fund. Other reportables include individual traders and speculators.


Nonreoprtables

The “Nonreportable Positions” class is derived by subtracting total long and short “Reportable Positions” from the total open interest. Accordingly, for “Nonreportable Positions,” the number of traders involved and the commercial/non-commercial classification of each trader are unknown.


Is Concentration Proof of Manipulation?

That’s the charge I have heard repeatedly for years. However, the claim makes little sense and even if it did, what is the proposed remedy?

Tell producers to stop selling so much gold? Tell coin producers to stop buying so much gold? Limit the number of contracts so that managed money cannot buy more gold than producers are willing to produce? Demand more market makers so that short positions are not as concentrated?

In general market makers are hedged. That’s why all these reports over the years “the commercial will soon get blown out of the water” is so silly.

Commercials have been net short short all but a few months for decades. The commercials have never been blown out of the water and never will.

The broker-dealers have admitted manipulation and been fined. But manipulation runs two ways. The market makers make money in both directions. Yet all we hear are complaints when the price of gold drops.

If there was market maker manipulation on Friday, it was higher, purposely running stops and killing the shorts. A vacuum then ensued, and prices tumbled.

The COT report for Tuesday, out Friday, may be revealing. But it’s also possible any long liquidation that happened Friday reversed today. This is the problem when dealing with time shots that have a multi-day lag.


Attempts to Take Gold Back Down?

Who precisely is attempting to take it back down?

“Friday saw Western traders push gold past $2,400 leading to algo buying & short-covering. Once the upward momentum faded, they sold gold off (hard). Normally, after a long gold run-up followed by a significant intraday reversal, we would expect to see a lengthy correction. Next week will be interesting to see if the Asian buyers, who have been the primary drivers of the gold market rally, change that dynamic. Gold futures open interest at 517K is not particularly high, so that is a limiting factor for any correction that might develop.”

It appears “they” want it higher and “they” want it lower.

On Friday, once the shorts covered, there was a price vacuum. Prices fell. There was no need for a “they” to push the price lower. It was automatic!

If there was manipulation at all on Friday, it was more likely higher than lower.

I do agree with Hickey that open interest is not particularly high. It will be interesting to see what, if anything, happens to managed money futures.


Gold vs Faith in Central Banks

(Click on image to enlarge)

Chart courtesy of TradingEconomics, annotations by Mish

Gold is best viewed as a hedge against declining faith in central banks.


Investors Shy Away From Gold?

I disagree with that take. People can only buy as much gold as American eagles are produced.

Instead, look at Costco


Millennials Rush to Buy $2,300 Gold Bars at Costco

Costco periodically offers one-ounce gold bars. The bars sell out immediately, scarfed up by millennials.


On April 5, I noted Millennials Rush to Buy $2,300 Gold Bars at Costco

September 7, 2023: Debt to GDP Alarm Bells Ring, Neither Party Will Solve This

“Neither party will fix the deficits. Neither party will do anything about mounting debt. No one will do anything about anything because the political system is totally broken.” Mish

That’s the message of gold. Bitcoin advocates would say Bitcoin as well.

Looking for another place to buy gold from a reputable dearer?

Please give Bullion Star a look. For proper disclosure, I do have an affiliate relationship. It does not affect the price you pay but it helps me a tiny bit.

The above link contains my affiliate code.

At Bullion Star, you can buy grams of gold and silver as well as ounces.

If you are interested in trading gold or energy futures, you might wish to give Phil Flynn, @EnergyPhilFlynn at the Pricegroup a call. That’s a courtesy link. I have no formal relationship, but I have known Phil for a long time.

Would You Like to Earn Interest, Paid in Gold, Not Fiat Currency?

For those interested in earning interest on gold, paid in gold, please see Would You Like to Earn Interest, Paid in Gold, Not Fiat Currency?

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