The Gold Traders Who Know What They're Doing Are Going Massively Short

Trade the Cycles Blog ^ | 9-21-07 | Joe Ferrazzano

[joefrocks]

The gold traders who know what they're doing, the savvy usually non contrarian gold Commercial Traders, are going massively short. They added a very respectable 17,083 short gold futures and options contracts in the latest report/5 day period ending 9-18-07, and, a massive 52,000+ short gold futures and options contracts in the previous report (possibly the largest weekly change I've ever seen), while also trading long in recent weeks (added 1303 long futures and options contracts in the latest report for the 5 day period ending 9-18-07, and, over 10,000 long futures and options contracts in the previous report), see the last/third data at COT Data.

This jives with HUI/XAU possibly putting in very important countertrend Wave B (of the Wave 2 Cyclical Bear Market since 5-11-06) double top cycle highs early today/Friday 9-21 (5 Day HUI Chart), with HUI putting in (potentially) a bearish double top at 402.27, only 0.14% above the Wave 1 Cyclical Bull Market cycle high at 401.69 on 5-11-06, see HUI Chart, and, with the XAU putting in (potentially) a bearish double top at 173.17, only 0.85% above the Wave 1 Cyclical Bull Market cycle high at 171.71 on 5-11-06, see XAU Chart. The huge spike move since 8-16-07 is typical of what happens near very important cycle highs.

Also, the NEM Lead Indicator is SCARY. The NEM Lead Indicator = +0.07% versus the XAU today/on 9-21, -1.46% versus the XAU on 9-20, +0.69% versus the XAU on 9-19, -2.33% versus the XAU on 9-18, -0.53% on 9-17, +0.12% on 9-14, -1.34% on 9-13,+0.02% on 9-12, +0.25% on 9-11, -0.69% on 9-10, +0.42% on 9-7, -1.39% on 9-6, +0.06% on 9-5, -1.81% on 9-4, -0.98% on 8-31, -0.03% on 8-30, -1.86% on 8-29 = an extremely bearish -10.79% versus the XAU the past 17 sessions, see six month NEM Lead Indicator at NEM Lead Indicator Chart.

While Wave B cycle highs technically should be below the "ultimate" cycle highs, the market isn't an exact science (definitely a science though), indexes' components are changed periodically, and, often cycle highs will occur in dramatic rollover mode, that's very similar to a countertrend Wave B upcycle (basically the same as a Wave B when double tops occur, which is what might have happened today with HUI/XAU). The point being that, if one was in a basket of HUI or XAU components, the time to sell was in May 2006 not September 2007.

HUI/XAU should head down to their primary multi year Secular Bull Market (since late 2000) trendlines at 220ish and 90ish in the next 3-6 months, see charts 7 and 9 at HUI/XAU Charts. Gold should head down to it's primary multi year Secular Bull Market (since April 2001) trendline at $475-500 in the next 3-6 months.

Fundamentally, the current deflationary real estate/mortgage bust is a major negative for gold, just as the inflationary real estate/mortgage boom from 2002-2006 was a major positive for gold, coinciding with gold's Wave 1 Cyclical Bull Market from April 2001 until May 2006. Gold does well in inflationary economic cycles and gold does poorly in deflationary economic cycles, which is pretty basic stuff that a true gold analyst would understand.

[John123]

Read Jim Roger’s book. There is a commodity bull market going on. Accept it or not. I don’t care...

[arthurus]

It is a dollar denominated “bull” market. There is a “bull” market in groceries and in oil, too. It’s called “inflation.” Creating ever more dollars at a rate higher than the market requires raises commodity prices and most other prices, too. And some people think they are getting rich because they have a few more dollars than they did last year.

[Toddsterpatriot]

Jim, you're an idiot. But don't take it personally.

Know your risk is infinite while mine is finite and defined.

LOL!

[John123]

You didn't read the book... did you? There are several factors for the rise of commodities. The weak US dollar is one. The lack of supply is another. The increase in demand is another.

You do see where I'm going here... don't you? You need to stop wasting your time "lecturing" me and read some good books. Jim Roger's book would be an excellent start.

[groanup]

I’ve never heard of half of these guys that get their witch doctorates posted here. And I’ve been in the business 30 years.

[bjs1779]

Why would central banks want to hold gold down?

Gold is their competition. Paper money based soley on paper money always becomes worthless at some point in time.

[groanup]

Well they sure haven’t been able to hold it down this time. It’s funny that they can’t, because they have all the money. Of course it could be that they aren’t trying to.

[bjs1779]

Well they sure haven’t been able to hold it down this time. It’s funny that they can’t, because they have all the money. Of course it could be that they aren’t trying to.

Alan Greenspan seemed to say that they are.

"Greenspan waved off the necessity for the CFTC to regulate gold derivatives, telling Congress to fear not, that the “central banks stand ready to lease gold in increasing quantities should the price rise.”

http://www.financialsense.com/editorials/casey/2007/0125.html "

[groanup]

Greenspan waved off the necessity for the CFTC to regulate gold derivatives, telling Congress to fear not, that the “central banks stand ready to lease gold in increasing quantities should the price rise.”

It catches my attention that the quote is selectively presented. What came before the quotation marks? Probably not the words "fear not". I would have to see the whole testimony in its proper context to give it any validation.

Your source, Doug Casey, is a stock tout who makes money selling hot stocks, or stock tips, to suckers. Why should I believe anything he says?

[bjs1779]

Think what you want.

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves." - Allen Greenspan - 1966

http://www.lewrockwell.com/north/north204.html

[arthurus]

Of course I do. Those conditions are all the same thing. Supply is always “scarce” else there would not be “price.” Price rises because there is more money chasing the available goods both because there is more use and because there is more nominal money “printed.” There are several books I used to proffer for the edification of people with half an education and half an insight. But perceptive folks usually find them on their own and others can’t handle dry economics. Reagan was our most successful president economically because he one of two or three who have understood economics and was the only president with an Econ degree.

[arthurus]

It is not even good as toilet paper- too scratchy.