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Monday, May 20, 2013 12:03 PM

Wild Swings in Gold and Silver; Time to Give Up Hope?

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Overnight action in gold and silver was interesting to say the least. Silver plunged 10% and was halted four times in a flash crash, of sorts, yet is now in the green.

Silver 10-Minute Chart

click on chart for sharper image

Silver hit as low as $20.25 and as high as $23.24. The maximum rally from the low was 14.8%

Gold 10-Minute Chart

click on chart for sharper image

Action in gold was also pronounced, but not quite as wild as silver. Gold fell $25 from the open but is now up $22 and and in the second-to-last 1--minute candle (about 10 minutes ago from this posting) was up another $10.

Time to Give Up Hope?

Louise Yamada says it's Time for Gold Bulls to Abandon Hope. Is it? I think most already have. There is amazing pessimism in the sector already, and abandonment of hope is what it takes to set a bottom.

Are We There Yet?

I don't know if we have reached the point of extreme pessimism yet, but nor does anyone else.

Are we close? I believe so.

Large Specs Trim Gold, Silver Net Longs

Please consider Large Specs Trim Gold, Silver Net Longs.

Large speculators continued to pare their net bullish positioning for gold and silver futures and options but increased it for platinum and palladium during the most recent reporting period for data compiled by the Commodity Futures Trading Commission.

Money managers in the CFTC’s “disaggregated” report were net long by 39,216 contracts for futures and options combined, but this is down from 49,260 the prior week and is the lowest tally since this reporting format began in 2009. In the longer-running “legacy” report, the non-commercials – commonly referred to as the funds – cut their net long to 68,942 lots from 78,871 the prior week. This now stands at the lowest level since late 2008.

Bank of America Merrill Lynch pointed out that large speculators continued to unwind long positions. The number of total longs in the disaggregated report fell by 2,986, while the number in the legacy report fell by 5,284.

Further, speculators continue to add short positions, pointed out UBS and TD Securities. TDS said this is occurring amid concerns the Federal Reserve may taper its monetary stimulus, thereby weighing on sentiment. Money managers added 7,057 fresh shorts, while non-commercials added 4,645. UBS reported that total speculative gross short positions in gold are at a record high and double the level from the start of the year.

Meanwhile, net speculative length rose for the platinum group metals. Standard Bank described these metals as “experiencing supply-side distress” that means more potential for increased investor demand.

Money managers bumped up their platinum net length to 23,703 lots from 21,819 the previous week, while non-commercials increased this to 32,734 from 30,641. In both cases, this was largely due to fresh buying. Money managers added 1,421 new long positions, while non-commercials added 1,247.
In percentage terms, the decline from just over 1900 to the $1325 area is just a normal looking correction. Yet, fund speculation is at the lowest level since 2008.

While not a timing mechanism, pessimism seems rather extreme for such a normal looking correction.

Nothing has changed fundamentally as irrational exuberance abounds in nearly all the equity and bond markets, all running on nothing but momentum and unwarranted faith in the Fed to keep the bubbles expanding.

Mike "Mish" Shedlock

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