Loading ...* Correction* on “The Commercials have Liquidated”
The Commercials have indeed liquidated their short positions in the steepest liquidation of the past fifteen years, but there’s “another part” to the story: that of the Commercials being Net Long.
I’ve corrected my earlier post and will provide that update in this new post in case some miss the correction of the older one.
Commercials include others than just producers (miners) such as fabricators and jewelers who could be long to protect themselves from rising cost of the metal they need. The time period highlighted by the green rectangle shows the PEAK Net Long Gold Positions of the Commercials on Comex Gold. The Commercials could have been Net Long a smaller number of contracts for some years earlier in what was a seemingly endless Secular Bear market for gold (1980 – 1999).
As for another sentiment indicator, the Percent Bullish among newsletter publishers and CTAs tracked by Consensus-inc. has recently dropped to 24% – the lowest it’s been since 2004.
Thanks Boo
That is an interesting chart
So Commercials were net long at the beginning of the Great Bull
It looks like they were net long for 3 years before it took off though….is that right ?
Is there a chart by any analyst that’s readily available of the net longness/shortness of the commercials over a very extended period of time (like 20 years)?
Great research Boobookman. I’m just going to quote from your original article:
‘“If the market doesn’t bottom when commercials liquidate their shorts, have they ever been net long? They have, and these are the peak positions. (In Oct 2003 I switched to include options so this list the futures only. My data starts in 1998) The average from the 5 observation is 65,871 net long.”
51,220 3/1998
76,329 9/1998
91,690 4/1999
42,590 5/2000
67,526 2/2001’
FGC’s question above seems really pertinent. They were quite heavily long several times before the bull market began. I wonder how short they got inbetween those occasions because the price wasn’t moving much at all $253-$275 mostly except for the late 1999 spike into the $335 area.
Where are they now? Just a tad short as you quoted (8000 contracts, down from 300,000+ as of Aug 7th? I guess we have to wait until this Tuesday (tomorrow) to see where they have gone since then.
However the above stats from your first version of the article imply that they need to go net long about 50000-60000 contracts to signal a long term bottom, an end of bear market bottom.
It’s also interesting that
a) they were substantially net long three times before the bear market low (in late summer 1999 at $252-253).
b) they were substantially net long the most contracts before that actual bottom.
c) they were substantially net long another twice before the retest of the low in April 2001 at $255).
It implies there might be quite a way to go timewise. The only “hope” for goldbugs is if this bear market is of lesser degree then the 1980-1999 one.
It’s a bit different in terms of the dollar cycles,
d) we haven’t had a dollar bear yet during this gold bear (like the 1985-87 $ drop with the crummy rally in gold to $500 in $ only and not in other currencies)
e) To me the chart pattern of the current gold bear looked close to completion, in some ways a similar form to the 1980-99 bear but the latter parts compressed in time. I fancied $1045 might have been the low but I’m not so sure now. Perhaps a test of $1045 is in order…. or at least a ocuple of tests of $1180 to make Spock’s chart symmetry even better… ? ? ?
If one were to take Boobooman’s chart literally as a model for the present market, there was an aggressive new low at $278 in Dec 97- Jan 98 before any heavily commercial net long was registered.
Then there was one heavily long net position, Mar 98 and a slight NEW LOW (£275) in around July 98 followed.
They were the heavily net long again twice in Sep 98 and Apr 99 before the final low in Aug/Sep 1999 low at $253 and the spike that followed to $337…
and twice more before the re-test of the low ($255 Apr 2001).
The $1045 Dec 2015 low would appear in that case to be unlikely to be the current bear market low if this model is followed to the letter.
It’s hard to see for certain on the monthly chart but there weren’t very impressive “technical bounces” in the gold price once these commercial longs had been accumulated, at least not immediately, except maybe after the one in early 1998.
The biggest commercial long in April 1999 is about 5 months before the fina low at $253 and then sudden spike into the 300s in Sept/Oct 1999, which was the Central Bank Gold Agreement / Washington Accord spike followed then by the infamous BoE gold sales.
The thing I take away is that maybe these big commercial longs are part of the “bottoming process” and they covered a substabtial period of time (3 years) as mentioned.
.Don’t you just “feel” an 11.. handle coming on gold any day now?
Immediately after I typed this, I looked at Kitco … $1202. Actually, $1201.90, down $9.00.
The London PM fix today will probably tell the story.