{"id":3752,"date":"2016-10-08T00:36:39","date_gmt":"2016-10-08T04:36:39","guid":{"rendered":"http:\/\/blog.silver-investor.com\/?p=3752"},"modified":"2018-06-10T10:54:45","modified_gmt":"2018-06-10T10:54:45","slug":"great-news-for-gold-bugs-the-cot-report-is-playing-out-as-usual-which-means-lower-then-much-higher-prices-coming","status":"publish","type":"post","link":"https:\/\/www.themorganreport.com\/blog\/great-news-for-gold-bugs-the-cot-report-is-playing-out-as-usual-which-means-lower-then-much-higher-prices-coming\/","title":{"rendered":"Great News For Gold Bugs: The COT Report Is Playing Out As Usual, Which Means Lower \u2013 Then Much Higher \u2013 Prices Coming"},"content":{"rendered":"

This year\u2019s recovery in precious metals prices \u2013 and the sudden spike in gold\/silver mining stocks \u2013 convinced a lot of people that a new bull market had begun. Last week\u2019s brutal smack-down scared the hell out of many of the same folks.
\nThe latest commitment of traders (COT) report implies that we should all relax. Things are playing out pretty much according to a script that\u2019s been in place for decades \u2014 and which points to happy times by early next year.
\nThe quick and dirty COT story is that it\u2019s a snapshot of what the big players in gold\/silver futures contracts are up to. There are two main groups in this market: the commercials (mostly big banks and companies that buy metal to turn it into coins, jewelry and industrial products) and speculators who bet on price moves. The former consistently fool the latter into guessing wrong at turning points. That is, the speculators are usually way long at the top and very short at the bottom. So you can tell where prices are headed over next the six or so months by looking at what the speculators are betting on and assuming that if they\u2019re excited, they\u2019re wrong. The following chart illustrates the point. Ignore everything here except the red line, which represents the speculators. When it\u2019s way up, they\u2019re very long and prices are about to fall, and vice versa.
\n\"cots-oct-16\"
\nThis year they\u2019ve gone record long, which explains the fast recovery in metals prices and mining stocks: The speculators were piling in. This of course sets the stage for an eventual correction. So what happened last week was to be expected (though it was several months overdue, illustrating the point that the COT report is great for direction but dangerously unreliable for timing).
\nSo now that we know why the beat-down is happening, let\u2019s see what this indicator says about when (in very general terms) it might end. Here are the weekly COT reports for gold and silver through last Tuesday, courtesy of our good friends at GoldSeek<\/a>:
\n\"gold-cot-oct-16\"
\n\"silver-cot-oct-16\"
\nNote that the speculators are cutting their long positions while the commercials are scaling back their shorts. Here\u2019s the same data expressed in percentages:
\n\"cot-percentages-oct-16\"
\nThe key conclusions:
\n\u2013 Both groups are moving in the right direction to establish a precious metals bottom. That is, if they keep this up, eventually the commercials will be long and the speculators short, setting up a situation where the speculators will be forced to close their shorts by buying gold\/silver, thus sending their prices up.
\n\u2013 The commercials are moving a little more aggressively than the speculators to close out their positions. Not sure that that means.
\n\u2013 Neither group had done all that much as of Tuesday the 4th, which implies that the bottom is not yet in sight.
\n\u2013 Based on the brutality of the final three trading days of last week, next week\u2019s COT report will probably show a much bigger move in the right direction \u2014 that is, the speculators will be a lot less long. So on Friday the 14th (when Tuesday the 11th\u2019s results are reported) we\u2019ll have a better sense of how close that bottom is.
\n\u2013 The carnage in bullion and mining shares represents a great buying opportunity because eventually these paper games will stop working. The fundamental environment \u2013 negative interest rates, massive government deficits, steady increases in private sector debt, incipient banking\/credit crises everywhere you look \u2013 is phenomenally good for real assets like gold and silver. So who knows? This might be the last chance to get in before the phase change.
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