The Case For An Explosive Surprise In The Price Of Gold

July 31, 2015

I've been bearish on gold for so long that my successively lower targets have become almost perfunctory. Lately, I’ve focused on a ‘Hidden Pivot’ target at $817, the attainment of which would presumably wash out the last of the die-hard bulls, clearing the way for a resumption of the long-term bull market. Now, however, I am obliged to consider an alternative possibility — i.e., an explosive move without the washout.  Although I lack the imagination to envision such world-shaking news as might cause this to happen, I credit a relatively recent Rick’s Picks subscriber, Michael Gibbons, with jarring me awake.

Gibbons is a market-timer of legend himself, with a high-end service that offers precise, timely trading guidance for 30 vehicles, including commodities, index futures, ETFs, stocks and options.  His take on gold, based on the latest Commitment of Traders (COT) report, is that a potentially major move may be close. It turns out that commercial traders have been drastically reducing their short-gold positions, presumably in anticipation of a trend change. Although the commercials are never net-long gold contracts, they are significantly less short than they’ve been in quite a while. And that is good news for gold investors, since, as Michael points out, these guys are seldom wrong at important turning points. The last time they had it exactly right was in May, when they were loaded for bear, so to speak, a day ahead of gold’s steep plunge from a rally spike to 1232 on May 18.  The August Comex contract has fallen $160 since, or about 13%.

Over that time, commercial traders have covered a substantial portion of the short positions they held in mid-May. That could explain why gold has remained relatively buoyant during the last two weeks, hovering above a correction target of mine at 1059 without quite being able to reach it.  According to Michael, the dramatic lightening of short positions by commercial traders has made a plunge in gold unlikely for now, if not impossible. He further notes that gold could still take another leg down, regardless of how the commercials are positioned.

For my part, no longer lulled to sleep by gold’s tiresome dirge, I will be more intently focused on the intraday charts; for they cannot but divulge the subtle beginnings of an important turn, assuming it comes. Stay tuned if you care!