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COT report update

Cory
October 10, 2016

Here is a recent post from over the weekend courtesy of our friend John Rubino over at DollarCollapse.com. John takes a look at the recent COT report and how the moves in gold last week impacted the changes.

Click here to visit John’s website for more great precious metals focused articles.

Great News For Gold Bugs: The COT Report Is Playing Out As Usual, Which Means Lower – Then Much Higher – Prices Coming

This year’s recovery in precious metals prices – and the sudden spike in gold/silver mining stocks – convinced a lot of people that a new bull market had begun. Last week’s brutal smack-down scared the hell out of many of the same folks.

The latest commitment of traders (COT) report implies that we should all relax. Things are playing out pretty much according to a script that’s been in place for decades — and which points to happy times by early next year.

The quick and dirty COT story is that it’s a snapshot of what the big players in gold/silver futures contracts are up to. There are two main groups in this market: the commercials (mostly big banks and companies that buy metal to turn it into coins, jewelry and industrial products) and speculators who bet on price moves. The former consistently fool the latter into guessing wrong at turning points. That is, the speculators are usually way long at the top and very short at the bottom. So you can tell where prices are headed over next the six or so months by looking at what the speculators are betting on and assuming that if they’re excited, they’re wrong. The following chart illustrates the point. Ignore everything here except the red line, which represents the speculators. When it’s way up, they’re very long and prices are about to fall, and vice versa.

cots-oct-16
This year they’ve gone record long, which explains the fast recovery in metals prices and mining stocks: The speculators were piling in. This of course sets the stage for an eventual correction. So what happened last week was to be expected (though it was several months overdue, illustrating the point that the COT report is great for direction but dangerously unreliable for timing).

So now that we know why the beat-down is happening, let’s see what this indicator says about when (in very general terms) it might end. Here are the weekly COT reports for gold and silver through last Tuesday, courtesy of our good friends at GoldSeek:

gold-cot-oct-16

silver-cot-oct-16

Note that the speculators are cutting their long positions while the commercials are scaling back their shorts. Here’s the same data expressed in percentages:

cot-percentages-oct-16

The key conclusions:

– Both groups are moving in the right direction to establish a precious metals bottom. That is, if they keep this up, eventually the commercials will be long and the speculators short, setting up a situation where the speculators will be forced to close their shorts by buying gold/silver, thus sending their prices up.

– The commercials are moving a little more aggressively than the speculators to close out their positions. Not sure what that means.

– Neither group had done all that much as of Tuesday the 4th, which implies that the bottom is not yet in sight.

– Based on the brutality of the final three trading days of last week, next week’s COT report will probably show a much bigger move in the right direction — that is, the speculators will be a lot less long. So on Friday the 14th (when Tuesday the 11th’s results are reported) we’ll have a better sense of how close that bottom is.

– The carnage in bullion and mining shares represents a great buying opportunity because eventually these paper games will stop working. The fundamental environment – negative interest rates, massive government deficits, steady increases in private sector debt, incipient banking/credit crises everywhere you look – is phenomenally good for real assets like gold and silver. So who knows? This might be the last chance to get in before the phase change.

Discussion
30 Comments
    Oct 10, 2016 10:49 AM

    It’s always next year.

      Oct 10, 2016 10:51 AM

      Really getting old…Ditto

        DC
        Oct 10, 2016 10:04 PM

        In total agreement.

      Oct 10, 2016 10:51 PM

      I guess you guys would feel better had he just said that happy times could be here in three or four months.

      2016 has been fantastic, so anyone who said “next year” in 2015 was 100% correct.

        Oct 10, 2016 10:15 PM

        Yeah,..next year is less than 90 days. SO ,WHEN OBAMY IS OUT WILL BE HAPPY!!!! 😉 😉

    CFS
    Oct 10, 2016 10:59 AM

    Russia says it supports OPEC plan to limit oil production
    AP – 13 mins ago
    Putin says he is prepared to reduce Russian oil production if an agreement can be reached on a total production limit among OPEC.

    Oct 10, 2016 10:06 AM

    Gary Savage put out a piece showing he gets it as well.

    https://blog.smartmoneytrackerpremium.com/2016/10/bull-markets-corrections.html

    CFS
    Oct 10, 2016 10:17 AM

    I even bought some more physical yesterday. (Even though I have have no room in my safe when it arrives!)
    I’ll probably just give it to my son. I don’t trade in and out of physical, anyway.

      Oct 10, 2016 10:57 PM

      Will you adopt me as your son please.

    CFS
    Oct 10, 2016 10:23 AM

    http://www.demeadville.com/081016_The_Gold_Update.html

    Nobody knows why?
    Can’t you spell m-a-n-i-p-u-l-a-t-I-o-n?

    Oct 10, 2016 10:52 AM

    CFS:

    Can you spell COTs predicted this well in advance? Reread the piece above by John Rubino, he nailed it. All markets are manipulated and all markets have corrections. This is nothing more than a perfectly normal and predicted correction that happens when the over leveraged speculators panic. It happens every time.

    CFS
    Oct 10, 2016 10:55 AM

    I agree, the Chinese closing provided the timing though.

    Oct 10, 2016 10:58 AM

    Dang Bob, I thought you said there was no manipulation on Comex…..

      Oct 10, 2016 10:00 PM

      Did I read your statement to CFS correctly?

        CFS
        Oct 10, 2016 10:44 PM

        Which statement?
        If it was about buying physical. Yes.

        I don’t look upon physical gold and silver as trading vehicles, just saving vehicles. When the price is high, I stop buying, when the price is low, I buy. I have several thousand ozs silver I bought at $3.50 an oz. I added all the way up to about $28-29, then stopped until it came back to $20 and have been adding periodically ever since. I typically buy sovereigns when in England, although one now has to be more and more careful with US customs, to the point I now only buy in the US. (Sovereigns used to be available in England at zero premium to spot.)

          Oct 10, 2016 10:59 PM

          Hello CFS,…….my question was to BOB M.

            Oct 10, 2016 10:03 PM

            Where he says ….,”All markets are MANIPULATED”

            Oct 10, 2016 10:06 PM

            Several months ago, ….we were taking Maniplation, on the Comex,…..either they are or they are not.

            CFS
            Oct 10, 2016 10:20 PM

            My eyesight is bad, I misread.

          Oct 10, 2016 10:02 PM

          CFS……no problem I know what you mean,my eyesight is bad too.

      Oct 10, 2016 10:08 PM

      OOTB:

      All markets are manipulated. If you understand corrections you can make a lot of money. If you think manipulation is important you can’t make money so it doesn’t matter if markets are manipulated or not. It’s like saying the sun shines during the day. It’s perfectly true and perfectly meaningless at the same time.

        CFS
        Oct 10, 2016 10:19 PM

        I think manipulation is important. But if understood, provides opportunities.
        That’s why I just made a purchase.

          Oct 10, 2016 10:30 PM

          CFS: There is perfectly normal trading such as running the stops that takes place all the time and is manipulation and is perfectly legal. And there is what gets blamed every time gold and silver go down. Since they are supposed to go up every single day, if they go down the only reason they have gone down is manipulation.

          If you understand trading you can make a lot of money no matter what you call it. If “manipulation” is just another way of saying you don’t understand how markets work, you will lose all your money because the people who claim that gold going down is proof of manipulation are always wrong. They want people buying at tops and selling at bottoms.

          We have had a perfectly normal correction. It wasn’t manipulation.

        Oct 10, 2016 10:04 PM

        Good…..now we know all markets are MANIPULATED.,Comes included!… 🙂

          Oct 10, 2016 10:10 PM

          Even this cheap phone…
          Comex,Crimex not Comes,….unless it’s Frank

    Oct 10, 2016 10:53 PM

    Trump is now the Two Headed Snake trainer.

    CFS
    Oct 10, 2016 10:02 PM

    Speaking of snakes, I notice there a Texas oil producer, FANG, up nicely today.
    A fracking expert, able to drill horizontally for a mile, if my memory is not mistaken.

      CFS
      Oct 10, 2016 10:06 PM

      Diamondback, FANG, is currently up 11%, but it was the volume that came to my attention.
      It had a quarterly or annual report out today….must have been good news.

        CFS
        Oct 10, 2016 10:08 PM

        P.s. I do not own any shares of Diamondback, but just placed it on my watchlist this morning.

    CFS
    Oct 10, 2016 10:31 PM

    Polical. OFF TOPIC:
    The Two-headed Snake:

    Emails show how private and public Clinton statements clash. AP – 24 mins ago?

    In private paid speeches to financial firms and interest groups before she declared her candidacy, the Democratic presidential nominee comes off as a knowing insider, willing to cut backroom deals, embrace open trade and grant Wall Street a central role in crafting financial regulations, according to excerpts obtained last week through hacked campaign emails provided to WikiLeaks.

    Compare that with her public remarks in the presidential race. For voters, Clinton has embraced the rhetoric of a class warrior: Higher taxes on the wealthy. Tougher rules for Wall Street. Empathy for the financial burdens of ordinary Americans.

    The gap between her private and public remarks helps explain the relatively high levels of distrust that voters, including some of her own supporters, have expressed about the former secretary of state. Privately, to audiences at Goldman Sachs and others, Clinton expressed a philosophy that in some ways clashes with the progressive vision she has articulated while campaigning.