HOUSTON (ResourceInvestor.com) -- Most of the indicators this report follows closely improved in the two weeks since the last Got Gold Report, but the pace of that improvement would have to pick up some to be more convincing.
The last GGR two weeks ago noted another disproportionately large (25%) drop in COMEX commercial trader gold net short positions relative to the price movement for the metal which has historically been rather bullish short-term. Since then, as gold meandered more or less sideways either side of its 50-day moving average inside a well-developed technical uptrend channel, the COMEX commercials continued to reduce their net short exposure by over 6%.
With April-May looming, a period that has been unkind to investors long metals and mining shares in the recent past, it is particularly interesting that the largest gold futures traders on the planet have chosen to reduce net short exposure with gold trading in the $650s.
Meanwhile an expected improvement in the relationship between mining shares and gold and silver metal prices did indeed start to show, albeit tentatively so far. Given that apparent improvement in metals market confidence this report continues its cautiously bullish stance for gold, silver and mining shares and sees no reason for long term investors to tighten normal trailing stops. At least not yet.
Since this report turned cautiously bullish on September 17 with cash market gold at $570, the global standard of wealth for over four millennia has advanced a net $87.22 or 15.3% as of Friday’s close.
With that, let’s take a detailed look at some of the indicators this report follows closely.
COT Changes. The Tuesday 3/20 commitments of traders report (COT) shows that the COMEX large commercials (LCs) collective combined net short positions (LCNS) actually declined 1,022 contracts or 1% from 130,916 to 129,379 contracts net short Tuesday to Tuesday having dropped 6,395 contracts the week prior. Gold metal closed the previous Tuesday 3/13 at $643.20 and at $658.20 this past Tuesday 3/20 on the cash market, a gain of $15. So while the metal increased the total collective net short positions held by large commercial interests on the COMEX actually decreased a little. When the LCNS declines on flat or higher gold we usually regard that as a positive sign short term.
Since Tuesday gold edged lower less than a dollar after having tested as high as $666.89 Thursday 3/22. It closed Friday at $657.22, chalking up a $5.22 gain for the calendar week.
Total COMEX gold open interest dropped a big 34,364 lots to 359,726 open contracts after adding 11,540 lots the week prior. Long-term December ‘07 and beyond COMEX forwards ended the current week 2,329 contracts higher at 89,151 or a still high 24.7% of open contracts.
Since the LCNS actually declined into higher gold this indicator remains on the bullish side of the gold market indicator ledger.
Gold versus the commercial net short positions as of the Tuesday COT cutoff:
Source for data CFTC for COT, cash market for gold.
Gold ETFs. Over the past week gold holdings at streetTRACKS Gold Shares, the largest gold exchange traded fund [NYSE:GLD], added a net 2.47 to 479.31 tonnes of gold bars held by a custodian in London for the trust. However, the prior week saw a reduction of 6.17 tonnes. While money flow was slightly positive for this week it continues to be choppy for GLD following the high-volatility event three weeks ago. Volume for GLD has been slightly less than the 60-day average over the past week.
Gold holdings for the U.K. equivalent to GLD, LyxOR Gold Bullion Securities Limited, trimmed a maintenance 0.01 to 87.98 tonnes of gold held, while Barclay’s iShares COMEX Gold Trust [AMEX:IAU] added 0.47 tonnes to hold 44.73 tonnes of gold metal held for its investors.
With no significant reductions in gold metal holdings by gold ETFs evident since the abrupt sell-down for gold metal three weeks ago and slightly positive money flow over the past full week this indicator has to remain on the bullish side of the gold market indicator ledger for now. Larger reductions (than a net 3.23 tonnes over two weeks) would be necessary to convince this market watcher that significant negative money flow for gold ETFs was occurring. On the other hand it is somewhat disappointing that we did not witness a bump in positive money flow once the sell-down for gold metal paused. Traders might want to keep an eye on gold ETF metal holdings daily going forward. A good place to start is the World Gold Council’s Exchange Traded Gold webpage.
Source for data streetTRACKS Gold Trust
Silver ETF: Metal holdings for Barclay’s iShares Silver Trust [AMEX:SLV], the U.S. silver ETF, continued once again to show positive money flow (more wealth entering than leaving) over the last week. SLV reported adding another 30.97 tonnes from 4,011.28 to 4,042.25 tonnes (129,961,277.7 ounces) worth $1.7 billion as of Friday’s figures.
Silver metal on the cash market was up a nickel over the past week with the last trade Friday of $13.18 after testing as high as $13.52 Thursday. In the two weeks since the last GGR the white metal reclaimed a net $0.24 after testing as low as $12.59 Wednesday 3/14.
The last GGR two weeks ago said: “The trading (for silver) bounced neatly off an implied support trend line (TL) and above its 200-dma as investors world wide probably considered the vertical descent overdone. Until a convincing TL break occurs this indicator remains on the long-term bullish side of the indicator ledger. (Emphasis on the word “convincing.”)”
There is no reason to change that sentiment given the trading over the past two weeks.
Please see the short term graph for silver metal and the 1-year silver graph for additional technical commentary on the charts themselves.
Source for data Barclay’s iShares Silver Trust. Please note silver metal price data points extrapolated from cash market closing data since 3/8 and subject to minor revision.
Gold Charts. The daily chart for gold reflects the metal’s attempt to reclaim chart real estate above the 50-day moving average (50-dma) despite a Friday profit taking dip 3/23. As mentioned in the last GGR, even with the abrupt sell-down three weeks ago all the moves so far are confined within the now well-established uptrend channel, with support having apparently formed near the lower channel trend line (where expected) and above the 200-dma.
Please also see the 2-year weekly version for context as well as additional technical commentary.
Historically since the Great Gold Bull began in 2001-2002 investors have been generally rewarded for buying the metal near or below its 200-dma. Similarly, that has also been the case with the 12-month moving average on the gold monthly chart.
This indicator remains bullish on the gold market indicator ledger.
U.S. Dollar. As the U.S. dollar index fell 65 basis points from 83.72 to 83.07 Tuesday to Tuesday the commercials increased their net long positions to 14,142 contracts net long. From Tuesday to Friday the index clawed back up 23 ticks to close Friday at 83.30. Commercial traders on the NYBOT still must think the greenback is headed higher, but they thought that two weeks ago and the buck has declined a net 74 bps since.
Please see the 1-year daily USD chart and the 2-year weekly USD version for additional technical commentary.
With the commercials adding to their net long positions into a falling greenback they are apparently still convinced the path of least resistance for the buck is higher, so this indicator has to stay on the bearish side of the gold indicator ledger short term.
Gold Indexes. All over the globe technically minded portfolio and fund managers, long and short-term traders and investors large and small track their favorite indexes and make trading decisions based on them. The AMEX Gold Bugs index, [AMEX:^HUI] which follows a basket of fifteen of the most popular mining companies that generally do not use hedging and therefore should have more leverage to the gold market, is one of the most popular of those indexes and is the index that this report tends to focus on.
Please see the 6-month daily HUI chart and the 3-year weekly HUI chart for context and additional commentary on the graphs themselves.
The HUI Section in the last GGR two weeks ago mentioned: “…the HUI has recovered chart real estate above its 40-wma and held trend on a weekly closing basis, (see the 3-year chart) and that is technically bullish, but the next two indicators remain worrisome and suggest that collective investor confidence has so far not returned to the miners. (Emphasis on the words “so far.”)”
We can note some modest improvement to the two indicators below, but nothing really stimulating or convincing yet. However, the HUI index has managed to make it up to a minor resistance level near 341 which is above the popular moving averages. Most traders would consider that bullish action. It would be a lot more convincing if the two indicators below would show signs of more robust confidence.
HUI:Gold Ratio. The popular HUI:Gold Ratio measures the relative performance of mining shares versus gold. When the ratio is rising mining shares are putting in a stronger performance relative to the metal and vice versa.
Please see the one-year daily HUI/Gold ratio chart and the 2-year weekly HUI/Gold version for context and additional technical commentary.
The last HUI:Gold Ratio section in the GGR two weeks ago suggested: “Bulls for mining shares and the metals might want to keep an eye on this and the next indicator closely near term for significant changes. This one should be going up and the next one down very shortly if the recent attempt at support for the metals is going to be endorsed this time by mining shares.”
Well, we can note a modest improvement in both indicators since then, but the pace of improvement would have to get faster just to be “slow.” In other words traders on the long side ought to be looking for a more satisfying improvement before their comfort level can measurably advance.
Cash Gold-HUI. The cash gold minus HUI indicator closed the week at a still less than confidence inspiring 316.36, but that is an improvement over the 322.10 reading two weeks ago. If the size of the improvement leaves much to be desired at least the indicator seems to be trying to move in the right direction from a long gold and mining shares point of view. What would be more convincing is if the miners start consistently holding their ground relative to gold metal on pullbacks and/or the miners advancing with leverage to the price of gold on gold advances, both of which would result in lower (better) readings for this indicator.
Source for data cash market for gold, Stockcharts.com for HUI.
Short-Term Outlook: (Continued cautiously bullish; significant dips can be bought with appropriate new-trade trailing stops. Trailing stops normal for gold and mining shares for longer term investors.)
On the bullish side of the gold market indicator ledger we note that the LCNS actually decreased into a significant increase for the price of gold. Modest positive money flow showed for gold ETFs over the past week and SLV continued to see positive money flow, albeit small. Both gold and silver remain within well-defined uptrend channels technically speaking. The HUI has reclaimed territory above the popular moving averages although it is bucking up against minor resistance. We note modest improvement in the HUI:Gold Ratio and the Cash Gold – HUI indicators, though we would like to see the pace of improvement accelerating some in the coming weeks.
On the less bullish side of the ledger the commercial NYBOT traders continue to position for a stronger greenback. While physical metal demand seems robust into dips for both gold and silver over the past two weeks an apparent trend has been developing where that demand diminishes after rather smallish gains. (Judging by premiums for the metals on electronic bourses).
Overall this report remains cautiously bullish, but that stand is conditioned on continued improvement in both the HUI:Gold Ratio and the cash gold-HUI indicators over the next two weeks. Should that improvement not surface as expected a tighter trailing stop strategy will likely be recommended in the next GGR. Significant dips can be bought for gold, silver and selected mining shares provided traders are disciplined in the use and management of appropriate new-trade trailing stops for protection.
The next Got Gold Report is scheduled for the weekend of April 7-8 two weeks from now. Until next time, as always, MIND YOUR STOPS.
Long-Term Outlook: No change. A secular bullish perfect storm trend for precious metals continues. Rapidly escalating global investor demand, easier participation by investors via ETFs, conversion of Middle East petroleum dollars to gold, rising new demand from Asia, possible central bank buying partially offsetting central bank selling, conversion from dollars to gold by large U.S. dollar denominated foreign exchange reserves, declining gold production, increased political and NGO interference to bring new sources on line, rapidly escalating costs to produce, delays and shortages of equipment and manpower, previous two-decade bear-market-induced shortage of intellectual capital for miners, safe-haven buying to hedge strong, reckless, competitive dilution of under-backed fiat paper currencies, probably continued de-hedging and continued troubling global political and religious tensions are just some of the factors contributing to the long-term bullish winds now blowing. In real terms gold remains undervalued versus nearly all other commodities and strongly undervalued as measured by the world’s fiat paper promises. … The Great Gold Bull has a long way to go. It just won’t go straight up. Got gold?
The above contains opinion and commentary of the author. Each person should study the issues carefully and, as always, make their own informed decisions. Disclosure: The author currently holds a long position in streetTRACKS Gold Shares, iShares Silver Trust and holds various long positions in mining and exploration companies.
