Friday’s Rally Faded Into The Close

Commercial gold hedgers reduced their short holdings by nearly 25% last week – a sharp reduction. Their combined positions (futures and options) dropped an astonishing 37%. Speculative shorts remain at or near record highs. For example, managed money is short 153,108 gold contracts. During the July 2017 low, their shorts reached 100,397 contracts (see below).

The commitment of traders is now even more bullish. Unfortunately, these reports don’t time the exact bottom…they merely tell us when the conditions are ripe for a reversal. The sharp reduction in commercial shorts last week and throughout July suggest we are very close to a bottom.

Monday will mark the 53rd day of golds common or daily cycle. The average in 2018 has been about 55-trading days. This too suggests we are very close to a low. If prices didn’t bottom Friday, then they should sometime next week.

Friday’s rally faded into the close, and we didn’t get the strong follow-through often associated with a low. The price action Monday and Tuesday will tell us where we stand.

  • If metals and miners rally on Monday or Tuesday and close above Friday’s highs, then prices probably bottomed.
  • If prices continue to weaken on Monday and Tuesday, then we will presumably see new lows and a bottom sometime next week.

I’ll watch the price action closely and post multiple updates.

-US DOLLAR- Prices could top here or continue to the upper boundary (6). A breakdown below the lower border is needed to confirm a top.

-GOLD WEEKLY- Gold formed another outside reversal; prices exceed both the high and the low of the previous week. Commercials reduced their shorts from -65,668 to -47,918 (a 25% reduction). Their combined futures and options dropped from -49,820 to -31,738 (a sharp 37% reduction). Speculative shorting remains at or near record levels. The ingredients are there for a bottom and explosive rally…all we need is a spark.

-SHORT POSITIONS- Y-Charts shows managed money short positions at a record 153,108 contracts. In contrast, they were short just 100,397 contracts last July when gold bottomed and rallied $150 in 8-weeks. They were short 110,836 contracts in December 2015 when gold bottomed at $1,045. A sharp turn in gold could ignite a short-covering feeding frenzy.

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