News

A Bottom or THE Bottom in COMEX Gold?

Gold Bar

Did you know you can get the Sprott Money Weekly Wrap Ups, Ask The Expert, special promotions and insightful blog posts sent right to your inbox?

Sign up to the Sprott Money Newsletter here.

 

There are many signals we can use in our search for THE bottom in COMEX gold's seven-month consolidation. Let's explore a few of those today.

First, let's note that the current consolidation, though long and grueling, is just a simple basing and flagging phase on the long-term charts. While the past few months have been no fun at all, the long-term picture remains very solid and projects gains to at least $2300 per ounce in the next up leg.

Craig Hemke analysis

On the daily chart, note that price bounced from the same $1680 level that had served as strong support from April-June in 2020. Be sure to also note that $1780 served as stout resistance during that same time period, so any decisive move now back above $1780 and the purple "bull flag" line should indicate that THE bottom has been reached.

Craig Hemke analysis

What else should we consider in searching for THE bottom and turn in price? Well, first of all, we should always be aware of the positioning within the Commitment of Traders Report. As of last Tuesday, March 2, the Large Speculators in COMEX gold were NET long just 189,638 contracts. That's their smallest NET position since the survey dated June 11, 2019—taken just days before the June 2019 FOMC meeting, where The Fed formally changed course and began cutting the fed funds rate. COMEX gold that day was trading near $1320 and then began a breakout charge to $1550 by August in a move that caught many by surprise.

Craig Hemke analysis

Next, we should check the monthly Bank Participation Report. This report summarizes the positions of the Banks that are most active in trading COMEX gold. With a reported NET position of 122,816 contracts short, this is the smallest combined short position since the report surveyed May 7, 2019.

Craig Hemke analysis

Craig Hemke analysis

And finally, on a day-to-day basis, let's watch the spread between the front-month futures contract (currently the Apr21) and the spot price. A normal situation finds these two prices in "contango", where the futures price is a few pennies to a dollar above the spot price. At present, however, we find these prices in "backwardation", where the futures price is below the spot price. See below:

Craig Hemke analysis

That this backwardation has been ongoing for over a week is indicative of heavy, relentless Bank and HFT selling in the COMEX derivative market—the type you'd see at a capitulating bottom. When price finally turns higher again, you'll see this situation turn, too, and price will move back into contango. As you can see, this hasn't happened...yet. However, when it finally does, you'll know that we have very likely seen THE bottom of this current consolidation phase.

So there you have it. Have we seen A bottom? Yes. However, have we seen THE bottom? Maybe, but with all major trend changes, one can only be certain with the benefit of hindsight. In the meantime, keep an eye on this space. All of us regular writers for Sprott Money are on the lookout for this key trend change. We'll be sure to keep you posted on a weekly basis.

Product Upselling Spotlight

Don’t miss a golden opportunity.

Now that you’ve gained a deeper understanding about gold, it’s time to browse our selection of gold bars, coins, or exclusive Sprott Gold wafers.

About Sprott Money

Specializing in the sale of bullion, bullion storage and precious metals registered investments, there’s a reason Sprott Money is called “The Most Trusted Name in Precious Metals”.

Since 2008, our customers have trusted us to provide guidance, education, and superior customer service as we help build their holdings in precious metals—no matter the size of the portfolio. Chairman, Eric Sprott, and President, Larisa Sprott, are proud to head up one of the most well-known and reputable precious metal firms in North America. Learn more about Sprott Money.

Learn More
about-sprott-skyline
Head shot of Craig Hemke

About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

no_comments

Looks like there are no comments yet.