Marshall Swing: New Lows Coming in Gold!
by Marshall Swing, Silver Doctors On the heels of a massive upward thrust during the last COT Week came this week’s equally massive short covering raid in both metals. What was very interesting in the rebound, however, was that silver went up to a new high (to pull out Spec longs) but gold never came close to matching the percentage gains of silver (by design) and I believe we might witness a downward thrust led by Commercials silver short coverings and as gold follows, gold will reach new lows. Silver is the Achilles Heel in the metals because it is such a small market and can be more easily manipulated than gold in order to cause fear in the Speculator’s gold camp. In this case, the Commercials want there to be fear but at the same time they want Specs to believe they can profit by buying shorts. It is a very complicated puppet on string from both above and below. Last week, we watch silver price repeatedly test the ceiling of Spec silver shorts while gold price deteriorated. That was intentional. They did not need to trip Speculator gold shorts but they need the mix to be just right in silver so they could crash it. Since that crash they have built silver back up and I believe they are getting ready to use silver to crash gold again. It is always a game of cat and mouse as the two metals and Speculator bets are in both metals and they tend to follow one another, joined at the hip. This Sunday, a well know silver investor asked me when the next silver smack down will be. I told him I did not recommend buying because the numbers did not warrant one direction or the other, in my opinion. He pressed me for some insight and as the hours passed I saw a well known (to me) reversal pattern in silver, followed through the week by two more behaviors I consider typical position reversal behavior. Commercials always seem to do certain things to change price points in the short and long mix before they crash the price to kill Spec longs or lift the price to kill Spec shorts. When you study the COT numbers, the volume, the total open interest, and develop theories about future events based on past behaviors it is simple to examine the current behavior and make a prediction, with the full knowledge they could read my article and change course just to make me look like I don’t know what I am doing. Commercials do not have the same threshold of pain on their stops as Speculators do. They can tolerate wider stops, much wider stops on their long and particularly short bets. But remember, the mathematical model says they are constantly adjusting their positions in order to gain maximum effectiveness in controlling price. So, the fact gold did not rise a similar percentage as silver, after the crash, is very telling, indeed. In silver, per today’s COT numbers, we see the Small Specs selling almost 3,000 longs just like the crash chart indicates we should see. The Small Specs are not engaged in trying to profit from short positions in the same way the Large Specs are hoping to take advantage of a declining market in the metals with equities soaring. When we examine the Large Spec numbers, we have to remember the full week and understand these numbers are very obfuscated due to; starting high, going higher, crashing and returning to an even higher high. The important data point is Large Specs have 3,650 less shorts and my model says they bought many shorts near the bottom and then were forced out of them when their stops were tripped as price rebounded to a new high. The disaggregated COT reveals both Producer Merchant and Swap Dealer ended the week with about the same level of new shorts to their totals so my guess is this was just the beginning of them adding shorts for the coming crash from position reversals. Bit what do I know? They might jump price up $1 just to kill more Spec longs! Nahhhh…. In gold, we see after the COT Week the last position reversal and the number of contracts traded in 30 minutes is staggering! 28,322 contracts!! And price hardly moved… That is a storm brewing. But let’s go back to the COT Week! Large Specs had 16,824 longs forced from their hands in the crash. They responded by taking short positions, almost 12,000 of them. Notice the stair step upward gold price after the crash. The Commercials keep testing those Spec short stops with higher price points but the COT Week ends on Tuesday without a major kill of those shorts. Of course the Specs are expecting the kill but was it the HUGE VOLUME today that scared them into covering those shorts at an even lower price point?