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The COMEX Gold Price Two-Step

gold prices chart

For the past two weeks, we've tried to prepare you for a rally in the COMEX gold price. Seasonal trends, along with economic reality, should combine for a breakout move in August and September. For now, though, we're still in July and the usual COMEX pattern of "wash and rinse" is underway.

If you missed last week's post, I urge you to read it now. We tried to detail the reasons for expecting a late summer rally, and I think we made a compelling case.

That post concluded with a warning, however, and that warning now seems somewhat prescient:

 

23 July Gold Price 1

That column was written last Monday, July 15, and by Tuesday, July 16, it appeared that price was on the verge of a breakout with both the spot and futures price of gold closing at a new all-time high. As I type this on Monday, July 22, we all know what happened next.

But why did price fall late last week? I believe we can once again blame that COMEX two-step of drawing in Speculators on rising prices and then washing them back out on lower prices.

The only real way we can measure the flow of Speculator and Bank positioning is through the weekly Commitment of Traders reports that are compiled by the U.S. Commodity Futures Trading Commission (CFTC). These reports are surveyed at the COMEX close each Tuesday, but the data is released a full three business days later. This makes the report quite stale and really only useful if you have access to the history of trader positioning and price—which, thankfully, I have.

So let's look at that history and compare it to the data from last Tuesday, the 16th. From the Goldseek website, here's the most recent Commitment of Traders report for COMEX gold:

23 July Gold Price 1

Those are some big numbers and would seem to show an excess of Speculator interest as of last Tuesday and the most recent price top. How big and how excessive?

  • The Large Speculator gross long position was 349,827 contracts. The last time their position was that large, the COMEX gold price fell $117 over the next five days.
  • The Large Speculator net long position was 285,024 contracts. The last time their position was that large, the COMEX gold price fell $134 over the next five days.
  • The Commercial net short position was 309,304 contracts. The last time their position was that large, the COMEX gold price fell $122 over the next five days.

 

COMEX Gold Price Analysis: Understanding the $80 Drop

And so, as you might expect, right now the COMEX gold price is down $80 since the Commitment of Traders survey on Tuesday, July 16. What will this week's report show when it's finally revealed on Friday, the 26th, at 3:30 EDT? You'll no doubt see a significant reduction in Large Speculator longs and Commercial shorts. That's just how it works.

Lastly, we'd be remiss if we didn't address again the deliberate opacity of the Commitment of Traders reports. With the unlimited hiring and computing power of the federal government, why is it necessary to withhold the weekly data for 74 hours? Does anyone really believe that it takes over three business days for the data to be compiled and entered into a spreadsheet? Yes, the CFTC reports trader data for all commodity and other futures contracts, but come on. There has never been a reasonable explanation of why the agency continues with the 74-hour lag time.

 

The Deliberate Delay of Commitment of Traders Reports

A reasonable person would conclude that the 74-hour delay is deliberate. And why not? Given the obvious connection between trader positioning and price, wouldn't it have been handy to know last Wednesday, the 17th, that the trader positioning had reached such historical extremes? Knowing the positioning on Wednesday might have helped an alert trader to avoid the $57 price smash of Friday, the 19th. Instead, the report was issued two hours after the Friday COMEX close and after all of the price damage had been done.

 

The Persistence of COMEX Gold Market Patterns

But again, and as usual, it is what it is. Bull markets in COMEX gold (and silver) have unfolded in the same two-steps-forward-and-one-step-back routine for decades, and this pattern will undoubtedly persist until the Digital Derivative and Fractional Pricing Scheme finally fails. We still expect a late summer rally, but over the next few days, you should expect more price pressure as the Large Speculators liquidate August contracts and only partially roll them to December. Once this process is complete, a "washed and rinsed" market will be ready for the next leg higher.

Don’t miss a golden opportunity.

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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.

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