October 25, 2017
In the hope of inspiring Comex speculator liquidation, The Banks are once again targeting gold's 200-day moving average.
Twice previously this year, The Banks have managed to maneuver the gold price down and through the 200-day moving average. On these prior occasions, the speculator selling that followed allowed The Banks to buy back and cover large amounts of their perennial short contracts.
On Friday, April 28 of this year, total Comex gold open interest was at 470,787 contracts and price was clinging to support at the 200-day. The next market day of Monday, May 1 saw Comex gold smashed for $15. By the time the selling subsided on Tuesday, May 9, price had fallen nearly $60 and total Comex gold open interest had contracted by over 37,000 contracts.
What had occurred? When price fell and closed below the 200-day on May 1, tremendous amounts of speculator long liquidation ensued. It was this selling that drove price down. Taking the other side of these trades were The Banks, which used the Spec selling to buy back and cover existing short positions.
Evidence of this is seen in the Commitment of Traders report from the survey week that ended on Tuesday, May 9. That report saw the Large Specs in gold decrease their NET long position by 40,200 contracts while the Commercials (Banks) decreased their NET short position by 39,500 contracts.
Price then rallied from $1225 on May 9 to $1305 on June 6 before beginning another pullback.
On Friday, June 23, total Comex gold open interest was at 449,164 contracts and price was once again clinging to support at the 200-day. The next market day of June 26 saw another one of those infamous "flash crashes" that led to a temporary breach of the 200-day but this line wasn't completely breached on a closing basis until Friday, June 30. Price then fell nearly $40 in five days before bottoming at $1215 on Monday, July 10.
From June 23 through July 10, price fell over $50 and the 200-day moving average yet, this time, total interest actually rose by over 30,000 contracts. Again, what had occurred?
This selloff not only saw Spec long liquidation, it also saw a significant amount of new Spec shorting! Evidence of this is again found in the CoT reports of the combined two weeks of June 28 through July 11. Those reports showed the Large Specs in gold decrease their NET long position by 71,000 contracts while the Commercials decreased their NET short position by 76,000 contracts.
All of this is summarized on the chart below:
So now here we are again. Just as in April and June, price has fallen back and is finding support above the 200-day. Also just as in April and June, the Large Speculators have thus far remained steadfast with their NET position mostly unchanged over the last four CoT reports. With history as your guide, what level do you think The Banks will target next?
Of course it's the 200-day moving average, currently found near $1266! There can be little doubt that The Banks hope to soon break this level again. In doing so, they hope to inspire enough Spec liquidation that open interest will fall back under 500,000 contracts from the current 529,000. This 30,000+ long contract liquidation by The Specs would allow The Banks to cover 30,000+ shorts...all of this before the next rally sets in.
And how far might price fall if The Banks can pull this off? Well, just as in May and July, not too far really. Note that those two prior riggings only moved price about $35-$45 below the 200-day before it turned and rallied. A similar drop now would target the $1230 area but I don't think it would make it quite that far. The chart below shows considerable, long-term support in the area near $1240, instead.
None of this changes, of course, our 2017 forecast made back in January. Back then, we speculated that price would advance through 2017 in a three-steps-forward, two-steps-back sort of pattern with the year's highest prices coming in the fourth quarter. Let's just wait now to see if The Banks are able to cover more of their short position before this final leg of the 2017 rally begins.