"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Friday, February 21, 2014

Commitment of Traders Info

A bit of information...I mentioned a while back (when gold was trading closer to $1200 and the "gold is always manipulated all the time" crowd was crying up their usual blues,) that the reason gold was lower was not because it was being manipulated but rather because speculators were generally shunning commodities in general in favor of high flying equities.

Take a look at the following two charts to illustrate the absurdity of those claims that gold was only lower because it was being manipulated.

Notice that from the peak in outright long positions in gold in October 2012, the TREND in hedge fund long positions was steadily lower until it reached an ultimate low in December 2013. Since that time the number of hedge fund long positions has been increasing while the number of hedge fund shorts has been steadily declining. And what has gold been doing since then...? Answer, why it has been moving higher just like one would expect it to do when the specs are coming back into the market.

Keep this in mind - specs drive our modern markets - when they are buying, prices rise. When they are selling, prices fall. Specs have had no reason to buy gold until apparently the start of this year but more so apparently since the start of this month of February. It has nothing to do with backwardation claptrap, lease rates, JP Morgan, and all the usual BS that so regularly pollutes the web in the gold bug community.

For some reason, commodities in general have been soaring recently. Shorts are getting obliterated across the entire sector with a vengeance. You name it - coffee, sugar, hogs, soybeans, wheat, corn, silver and of course gold. Frankly I am unclear as to what the main driver is for this sudden interest in the commodity sector. I have heard the usual chatter than equities are overvalued and commodities are undervalued, and there is some truth in that, but it seems to me that the weakness in the Dollar of late ( due to the weakness in the recent economic US data) has apparently caused a mass move back into the sector as part of another carry trade.

How far this could go or how long it could last is unclear. Frankly I have no idea what happened to the usual "February Break" but for now the charts in the sector have turned bullish. I have my own doubts that any of this is sustainable but will not argue with those same charts until they show some evidence that the mad buying binge has run its course.

One thing I can tell you, in some of the commodity markets that I monitor, the shorts or the bears if you prefer, have been obliterated. The fact that this has happened in almost every single commodity market makes me suspect that this general rally encompassing the sector is not going to last. A large amount of short covering has been taking place in tandem and that lets me know it is more of a macro trade that is indiscriminate in its buying.

In the meantime, traders, respect the technicals but remain vigilant for signs that this binge buying is fizzling out.