NFTRH Gold CoT Analysis Affirmed

Jordan Roy Byrne and Steve Saville are people that I think are highly knowledgeable when it comes to gold and the gold mining sector.  So this is not a post taking a shot at anyone.  Jordan focuses nearly exclusively on the gold sector and in my opinion does a good job either being right, or getting right when adjustment is needed.  He moves forward without hype, bias or ego.  Steve Saville is more diversified and a real sharp pencil in the drawer in his own right.

This morning Saville highlights Jordan’s video discussion of the gold Commitments of Traders alignment and why it is not necessarily to be feared in the manner that a certain hyperbolic technical analyst out there (30,000 [CoT] coffins anyone?) would have enthralled gold bugs believe.  Jordan’s video is here.

I purposely keep my public writing about the gold sector limited because there is enough noise out there in this overly noisy segment of the market.  But in NFTRH, we have been noting that if this is a bull market (folks, it’s not technically confirmed no matter what the pompom brigade would have you think) that “bear market rules are different than bull market rules” and so it is very possible that the current bearish CoT does not have to mean anything near what it has meant during the 2011-2015 bear market.  Indeed, in my opinion the worst thing about it is not the net short Commercials or the net long Specs, it is the over bullish little guy (small Specs).

While having all due caution in the face of the negative CoT buildup, the graphs below and the comments after them were when we began speculating about a possible change to “bull market rules” with respect to the CoT.  We reached back to the start of the bull market early last decade for reference.  It should be noted that Jordan subscribes to NFTRH, I assume for its coverage of the overall macro markets.

I am trying to avoid sounding territorial, but in this racket sometimes it’s about not being too shy to toot your own horn.  Toot toot…

From NFTRH 384 on February 28:

If I may affix my tin foil hat for a moment, let’s recall that in 2012 as the Fed announced full on un-sanitized QE(3) to take over from the expiring Operation Twist, the precious metals complex exploded higher. Many, including myself thought this policy would prove bullish. But that view was wrong because the CoT said it was wrong.

Back then we repeatedly asked “who are those guys?” in reference to the silver net short buildup just as Butch Cassidy did with the persistent posse that was dogging he and the Sundance Kid. This went on and on as the increases in net short positioning simply went on week after week into extreme territory while the prices of silver, gold and the miners continued to rise and the gold “community” declared victory over the forces of evil, loudly and publicly. We all know what happened next; the bear market revealed itself for all (who wanted) to see when the rally failed.

Central Bank policy making is in question now just as it was in 2012. Best, dear gold bugs, to keep a lower profile, have patience and be ready for a low risk setup. So yes, as a gold bull a correction, reaction or extended consolidation would be comforting in some ways right now.

Per the graphics below, things have not yet proceeded to the fateful state of Q4 2012 for gold but remarkably, for gold’s downtrodden little brother, net commercial shorting was even more extreme than 2012 as of 2.23.16. However, we have to drill deeper…

goldhedgers

silverhedgers

There is precedent for such a deplorable state of the CoT in silver in the early stages of a bull market. Today looks comparable to 2002 with respect to net commercial shorting in silver, which actually bottomed in late 2001 at $4 an ounce and did not start its obvious bull market until late 2003. But even then the net commercial shorting was very intense.

The implication is – and let’s remember that the letter writer is wearing his tin foil hat at the moment – silver was being leaned on heavily by the shorts and its bull market was birthed in short covering. Yes, it’s the old gold bug standby, the fabled running of the various banks, policy entities and quasi governmental entities tasked with keeping a heavy hand on the precious metals, which if left unattended might indicate widespread monetary chicanery if they get out of the barn.

This analysis appeared not only in NFTRH, but was also sent to eLetter readers under the title A Long-term Bull Market Correlation for Gold and Silver on February 28.

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