Last Friday’s CoT for the Comex Metals was rather interesting from a historical perspective. Because of this…and because we know that not everyone listened to Friday’s podcast…it seemed appropriate to type up this written summary today.

Before we begin, it is VERY important to note the restrictions that have been deliberately placed on this info by the CFTC. Even though the Commitment of Traders reports are surveyed at the Comex close each Tuesday, the CFTC purposefully waits 74 hours before releasing the data to the general public. As you consider the degree to which the “regulators” at the CFTC are complicit in the ongoing price management and manipulation, ask yourself why it takes a handful of dedicated public servants 3 days to crank out these spreadsheets: http://www.cftc.gov/dea/futures/other_lf.htm

Also, we are going to assume that this data is accurate. There have been occasions in the past where the CFTC has put out some numbers that seemed odd and inconsistent to those of us who follow the reports weekly….only to have the CFTC come back the following week and correct their “mistakes”.

And lastly, never assume that this data is sacrosanct and honestly reported by The Banks. Over just the past three years, JPMorgan has been fined on several occasions for knowingly submitting false data:

• https://www.bloomberg.com/news/articles/2016-03-23/jpmorgan-fined-by-cftc-for-failure-to-submit-accurate-reports
• http://www.cftc.gov/PressRoom/PressReleases/pr6968-14

OK, now that we have that behind us, let’s take a look at last Friday’s report and point out a few of the important points.

Let’s start with Comex Digital Gold (or as we call it here, “CDG”). As you assess where price may go from here, please consider the following:

• Over the past three reporting weeks, price has fallen by $35 or nearly 3%.
• During this time period, the Large Speculators in CDG have reduced their NET long position by over 71,000 contracts or about 37%.
• As of last Tuesday, when this latest CoT was surveyed, the Large Spec NET long position was just 126,724 contracts and the Commercial NET short position was just 142,859 contracts. These are the lowest NET positions since the CoT survey of February 21, 2017.
• At 142,859 contracts NET short, the Commercial NET short position has been trimmed by more than 1/3 in just the past three weeks.
• Perhaps most importantly from a historical perspective, at the recent price highs of July 5, 2016, the NET long position of the Large Specs was 316,037 contracts and the NET short position of the Commercials was 340,207. Ask yourself how high might price rise if these 200,000 Spec longs return to the Comex over the next few months?

Finally, for CDG, consider this chart:

Now let’s turn our attention to Comex Digital Silver or “CDS” for it’s here that the changes are rather eye-opening. Let’s lay some of them out as we did above for CDG:

• Over the past five weeks, price has fallen by $1.58 or about 8.6%.
• During this same time period, the Large Specs have reduced their NET long position by over 62,000 contracts or about 59%.
• As of last Tuesday, the Large Spec NET long position was just 43,004 contracts and the Commercial NET short position was just 57,337 contracts. These are the lowest NET positions since February 2, 2016.
• At 57,337 contracts, the NET short position of the Commercials has been cut almost exactly in half over the past five weeks from an alltime high total of 114,4141 contracts on April 11.

As you can see, just as in Comex Digital Gold, the recent CoT changes in Comex Digital Silver are significant. But, there are a few more remarkable datapoints you need to know. Again, these are from the report surveyed last Tuesday and released late last Friday:

• Here at TFMR, we like to look at what we call “The Large Spec Net Long Ratio” when we consider the “bullishness” or “bearishness” of the survey. All we do is take the summary positions from the silver report and divide Spec longs by Spec shorts. The lowest ratio we’ve ever recorded came from the CoT surveyed July 21, 2015. On that report, the Large Specs in silver were long 66,576 contracts and short 62,331. This produced a ratio of just 1.07:1.
• On February 28, 2017, we observed the highest ratio we’ve ever seen at 6.04:1. This ratio was still 4.99:1 five weeks ago with the CoT surveyed April 11. As of last Tuesday, the ratio is all the way down to just 1.75:1 and this is the lowest Large Spec Net Long Ratio we’ve seen since January 19, 2016.
• At 112,949 contracts, the GROSS short position of the silver Commercials is the smallest since the CoT of April 5, 2016.
• The GROSS short position of the Large Specs stood last week at 57,138 contracts, up from 26,454 contracts five weeks ago. But that’s not the interesting part. Consider this: At 57,138 contracts, this is the largest Large Spec GROSS short position in silver since the CoT Survey of August 4, 2015.

As in CDG, let’s put this data onto charts. See below:

In the end, what does all this mean?

Well, I suppose you could make the case that these most recent selloffs have washed out any “excess Speculator bullishness” that might have been present a few weeks ago. The CoT could also imply that upside potential now outweighs downside risk. However, for the reasons listed back at the beginning of this post, no one should ever make a trading or physical purchase decision based upon CoT info alone.

That said, given the similarities the current CoT structure has to the CoTs of late 2015 and early 2016, it seems safe to conclude that the prices of CDG and CDS are very close to…or have made…new bottoms. History suggests that the turnaround may not be immediate but the next price move from these lows could once again be substantial.

TF

www.tfmetalsreport.com/subscribe

The precious metals complex rebounded as expected after becoming very oversold just a few weeks ago. The rebound has been aided by weakness in the US Dollar, which plunged roughly 2% over several days. However, upon further inspection Gold’s rebound has been entirely dollar-centric. Gold has remained weak in real terms and strength in the gold stocks and Silver has been rather muted. In short, the lack of much stronger performance in the face of US Dollar weakness bodes for increasing downside risk over the near term. 

Gold’s recent strength has been driven entirely by Euro strength and not due to falling real interest rates, its primary fundamental driver. Macron’s win in France coupled with recent strength in European markets has supported what was an oversold and depressed Euro. This has supported Gold in US Dollar terms but only in those terms. As the chart below shows, Gold has been weak when measured against foreign currencies and equities.

The above chart shows that Gold remains well below its spring high near $1300 despite the US Dollar breaking its spring lows to the downside. In addition, Gold remains rather weak relative to foreign currencies and equities. The one hope for Gold would be a falling stock market and sustained strength in the Gold/equities ratio. While I expect that eventually, I do not think it is in the cards yet.

Turning to the gold mining stocks, we see immediate downside risk as the miners appear to have completed their oversold bounce.

Over the past few weeks GDX and GDXJ rallied 13% and 17% respectively and retraced a good chunk of their April decline. However, they now appear ready to decline into June and the upcoming Fed meeting. For the first time in months, GDX was unable to touch its 200-day moving average, which is already sloping down. Support for GDX is at $21 and $18-$19. Meanwhile, GDXJ peaked at its 50-day moving average and strong resistance at $34-$35. Its next strong support level is the December 2016 low.

If precious metals were about to blast off due to US Dollar weakness it would have already happened or precious metals would at least be showing much more strength. The greenback fell to a 6-month low yet the entire complex (ex Gold) is nowhere close to 6-month highs and remains well below 200-day moving averages. (Gold is trading right around its 200-dma). This is a warning sign as the sector could be quite vulnerable to a rebound in the US Dollar. We continue to wait as we expect lower prices and a good buying opportunity in select juniors at somepoint this summer. 

Jordan Roy-Byrne CMT, MFTA

Jordan@TheDailyGold.com

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