Gold breaks to the upside – COMEX speculator positions post largest single gain on record

Gold breaks to the upside – COMEX speculator positions post largest single gain on record By: Michael Kosares for USA Gold via Gold Seek

Gold suddenly broke to the upside on the morning of Thursday, May 30th, 2019. After rising nearly $70 – a 5.4% gain and eight-straight days of posting gains, it took a breather on news that Mexico would take steps to stem migrant flow to the United States, thus avoiding the imposition of new tariffs.  We asked Zac Storella from Counting Pips, a widely-acknowledged expert on the COMEX Commitment of Traders reports, what he saw in last week’s numbers.  His response is worth  noting:

“This week’s change in speculative positions (Commitment of Traders) for gold jumped by a total of +69,427 net contracts. This is the largest one-week gain on record, according to the CFTC data dating back to 1986. The current net position (long positions minus short positions) is now at the most bullish level in over a year – showing that sentiment for gold is coming back into favor.

Speculator sentiment is and has been an important aspect to a strong gold price. Speculators are generally trend-followers (buying higher prices, selling lower prices) and on a running three-year basis, we have found a strong correlation between speculator net positions and the gold price.

The week’s change did include a healthy amount of speculators covering their short positions as the total number of short positions fell by -23,413 contracts. However, the stronger case for gold is that almost twice as many long contracts positions were initated (+46,014 long contracts) compared to the short covering. With a combination of new long positions and declining short positions, any which way you look at it, this was a strong week for gold and gold bulls.“

Mish Shedlock summed up the psychology at the heart of gold’s upside move.  “Some view gold as an inflation hedge. It isn’t,” he said at his MishTalk blog.  “Gold is a hedge against the notion that the Fed has things under control. Gold fell from $850 an ounce in 1980 to $262 an ounce in 1999 with inflation every step of the way. People believed Greenspan, the great ‘maestro’ had everything under control. It was an illusion. Faith in central banks is about to be tested again.”

Similarly, in this year’s edition of In Gold We Trust, Incrementum’s Ron Stoferle and Mark Valek say that “Gold looks to a future in which the natural value of this unique precious metal is once again fully appreciated. In our opinion, the currently high trust granted into the skills of central bankers and the supposed strength of the US economy are the main reasons for the somewhat weak development of the yellow metal. If the omnipotence of the central banks or the credit-driven record upswing is called into question by the markets, this will herald a fundamental change in global patterns of thinking and help gold to old honors and new heights.”

Update from Billionaire’s Row

Billionaire Stanley Druckenmiller has been in and out of gold in recent years. He generally has a positive view of the metal and spoken favorably about owning it on a number of occasions. Apparently, he was one of those mysterious “investors” mentioned in countless press reports over the past few weeks who moved into safe havens. “When the Trump tweet went out, I went from 93% invested to net flat, and bought a bunch of Treasuries,” Druckenmiller told Bloomberg referring to the May 5 tweet from President Donald Trump threatening to increase tariffs on China. ‘Not because I’m trying to make money, I just don’t want to play in this environment.” . . . Druckenmiller says Treasuries are “the best game in town . . . “Gold’s not bad either,” he adds.

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Various authors presenting analysis and commentary on the precious metals, economy and precious metals mining markets.