by Craig Hemke, Sprott Money:
For the past two weeks, we’ve tried to prepare you for a rally in the COMEX gold price. Seasonal trends, along with economic reality, should combine for a breakout move in August and September. For now, though, we’re still in July and the usual COMEX pattern of “wash and rinse” is underway.
If you missed last week’s post, I urge you to read it now. We tried to detail the reasons for expecting a late summer rally, and I think we made a compelling case.
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That post concluded with a warning, however, and that warning now seems somewhat prescient:
That column was written last Monday, July 15, and by Tuesday, July 16, it appeared that price was on the verge of a breakout with both the spot and futures price of gold closing at a new all-time high. As I type this on Monday, July 22, we all know what happened next.
But why did price fall late last week? I believe we can once again blame that COMEX two-step of drawing in Speculators on rising prices and then washing them back out on lower prices.
The only real way we can measure the flow of Speculator and Bank positioning is through the weekly Commitment of Traders reports that are compiled by the U.S. Commodity Futures Trading Commission (CFTC). These reports are surveyed at the COMEX close each Tuesday, but the data is released a full three business days later. This makes the report quite stale and really only useful if you have access to the history of trader positioning and price—which, thankfully, I have.
So let’s look at that history and compare it to the data from last Tuesday, the 16th. From the Goldseek website, here’s the most recent Commitment of Traders report for COMEX gold:
Those are some big numbers and would seem to show an excess of Speculator interest as of last Tuesday and the most recent price top. How big and how excessive?
- The Large Speculator gross long position was 349,827 contracts. The last time their position was that large, the COMEX gold price fell $117 over the next five days.
- The Large Speculator net long position was 285,024 contracts. The last time their position was that large, the COMEX gold price fell $134 over the next five days.
- The Commercial net short position was 309,304 contracts. The last time their position was that large, the COMEX gold price fell $122 over the next five days.
COMEX Gold Price Analysis: Understanding the $80 Drop
And so, as you might expect, right now the COMEX gold price is down $80 since the Commitment of Traders survey on Tuesday, July 16. What will this week’s report show when it’s finally revealed on Friday, the 26th, at 3:30 EDT? You’ll no doubt see a significant reduction in Large Speculator longs and Commercial shorts. That’s just how it works.
