The Gold Spec Washout Begins

The Gold Spec Washout Begins 

Written by Craig Hemke, Sprott Money News

As we type this on Tuesday the 15th, the price of COMEX Digital Gold is down nearly 2% on the day. This places it under $1,300 per ounce and below its all-important 200-day moving average.

Over the last two weeks, we've attempted to summarize the risk of this event through weekly columns that are distributed here by Sprott Money. If you haven't been following along, you should be sure to review these two posts, as they pretty well encapsulate the goings on today:

• https://www.sprottmoney.com/Blog/gold-going-on-sal...

• https://www.sprottmoney.com/Blog/the-next-rally-in...

The charts below were included in those posts, and they are the best ones to review for perspective:

 

And so what we have here is another test of fortitude. 

Look, the only reason there is a TFMetalsReport—and we've been at this now for nearly eight years—is that we understand the forces at work in these "markets". Knowing the manipulation and the manipulators allows us insight and perspective that few others possess.

So, to that end, we KNOW that an opportunity is soon to be presented to us, whether we are aggressive traders or passive stackers. This is the ONLY way to manage and address the ongoing price manipulation and suppression. All other reactions—fear, anger, despair, etc.—are useless.

Below is another chart, this one from late February. Back then, we asked if you were mentally prepared for this possible fakeout. In fact, in my files, it's actually titled "fakeoutbowl"!

Regarding what lies ahead, as The Banks rout the Specs once again, we ask again today if you are mentally prepared for such a "fakeout"? While we expect the damage to be limited to just $1,270-1,280, what if we see $1,235 instead, in a sharp break designed to drive the Gold Specs as net short as the Silver Specs?

 

Either way—whether price turns at $1,275 or $1,235—are you prepared?

In this case, "preparation" DOES NOT mean that you have to buy some calls, some miners or some additional physical. That's NOT what this means at all.

Instead, are you prepared mentally to see yourself through this current storm? Do you understand the processes unfolding before your eyes and why/how it is happening? If not, then part of the blame is on me, as it is my job to make all of this clear.

To that end, let's try again.

Here's a brief and dramatically oversimplified explanation of the process...

In their role as "market maker", the Banks issue the contracts to the Specs. In COMEX gold, this is almost always a Spec taking the long side and a Bank taking the short side. From time to time, sentiment crashes, and the Specs rush to the exits. This selling of Spec longs allows The Banks to take the other side and buy back their shorts. This is what you are seeing today. At the end of the process, The Specs have generally lost, The Banks have generally won and the whole game resets to be played again.

By the time this current process ends (at most likely near $1,275 but possibly $1,235), the Large Specs will be very nearly fully "washed out", with a net long position of 60,000 contracts or less.

If price indeed "fakes out" everyone by crashing to $1,235, the Large Specs may actually be briefly seen as neutral or even net short, similar to the current CoT structure in COMEX silver. And at that point, the stage would be set for a MASSIVE rally, and this is where fortitude becomes your greatest ally.

What is now very likely coming is a low similar to the bear market end of December 2015. Back then everyone—and I mean EVERYONE—was forecasting sub-$1,000 COMEX gold as The Fed embarked on their tightening program.

However, at TFMR we held firm that the lows were in with a full CoT wash that saw The Large Specs net long just 9,750 contracts and the "Commercials" net short an all-time record low of just 2,911 contracts. We were proven correct, and in the first six months of 2016, price soared nearly 30%!

Here's a random post from late December 2015 that demonstrates the point:https://www.tfmetalsreport.com/blog/7347/gradual-r...

So please hang in there for the next few days. Again, the emotions of fear/anger/despair accomplish nothing. Instead, education and understanding accomplish peace of mind... and the foresight to recognize opportunity if so inclined.

The Gold Spec Washout Begins 

Written by Craig Hemke, Sprott Money News

Check out these other articles by our contributors:

Metals and Miners – The Sleeping Giant Trade - Chris Vermeulen (14/05/2018)

If you had any brains whatsoever, you’d be buying gold.” - Eric Sprott on weak currencies-(Weekly Wrap-Up, May 11,2018)

US Withdraws From Iran Nuclear Deal: The Sky is Falling, The Sky is Falling!-Nathan McDonald (09/05/2018)

The Next Rally In Gold-Craig Hemke (08/05/2018)

Comments

The New Feudalism Tue, 05/15/2018 - 19:43 Permalink

Oh, give me a home, where the US Buffalo roam,

and the Canadian Deer and the South African Antelope play.

Where seldom is heard a discouraging word,

and the Australian Skies are not cloudy all day.

Home, home on the range.

JIMSJOE2 Pearson365 Wed, 05/16/2018 - 09:57 Permalink

These people kust do not understand futures markets especially the Comex. Who really has consistently had the most shorts? Commodity producers, wholesalers, dealers, traders who are hedging their short dollar positions in currencies, etc. If I am a wholesaler most likely I need a line of credit from a bank to fund day to day operations. If prices fall the bank will call and demand tp pay down the loan or put up more collateral. I would simply have my bank or myself to buy put options to protect from financial ruin. This is true for wheat, sugar, corn, crude or any large commodity producer or dealer. Even SD Bullion hedges. If prices fall they can exercise their hedges for cash and if they rise let the options expire worthless. This is simply the cost of doing business.

      What makes the Comex unique is that currency traders use hedges for their long or short positions in currency markets. Since the dollar is the most traded currency on the planet and if you trade you must hedge, hence the staggering volume. About 4 or 5 months ago I heard Bill Murphy of GATTA claim that the shear volume on the Comex proves manipulation. How caan you supposedly understand this market and not know about the dollar hedges?

     I warned people last week to be very careful of gold. The it was at around 1321 which is above the 1300 resistance level and below the 1362 reversal level. Why is this important? Back in June of 2016 Armstrong Economics computer models forecast if gold did not break the 1362 reversal level at july's close this would indicate that the capital flight from Europe has accelerated again, (happening since 2011 as Europe collapses), and this would cause massive dollar strength, US equities to rise farther and gold would be crushed which is exactly what happened. There was so much capital being converted from euros to dollars that this created dollar shortages in foreign markets placing the FED i8n panic mode as the last thing it wants a strong dollar. Gold by the way reached the 1361 level and then dropped down to around 1100. We all know what happened to the dollar causing major problems for the FED and the planet.

    Now I warned last week this is again where we are heading as we move forward as the EU, euro, many banks, corporations and countries collapse. Traders are again piling into dollars moving the EUR/USD from around 120 to now 1772 with the pound also weaker along with the yen. How long this will last short term is up for grabs but the long term trend is in fact a much stronger dollar, US equities moving higher from capital leaving Europe and gold getting crushed again.

   Most Americans do not realize Europe is broke and cannot be saved. The only thing propping it up is the ECB which must tapper and have said so. Who then buys the debt? The private sector but they will demand much higher rates for the risks involved. A shit storm is getting ready to hit there again only this time there are no solutions.

    The computer models are forecasting that all of this will cause massive dollar strength so much in fact by 2020/1 the whole monetary system on the planet starts to implode.

    Now with all this going on do you really think that some "cartel" really gives a shit what the price of gold is?

    The fact is the physical gold market is simply to small to have any impact on the world's monetary system regardless of what the gold bugs say!

    By the way the models forecast certain levels years ago. Reversal levels are 1362, around 1280 and around 1240. Resistance levels are 1300, 1260 and 1200. Watch the dollar crosses as the gold price moves from level to level at times breaching up or down. Don't enter a trade if breached as the move thru must be substantial and have momentum to continue. Take the breach thru 1300 to 1321/2 and now at 1288. How fortunes turn! 

In reply to by Pearson365

MaxThrust Tue, 05/15/2018 - 20:00 Permalink

As if the [it rose nearly 30%!] actually needed the exclamation mark to make your point. Nearly 30% probably means it only rose 28.5% but hey 30% sound so much more exciting.

If I see this use of exclamation marks when they are unnecessary I usually get the feeling the writer is trying to sell me something.

Note to the Writer: When communicating with adults, better to write a more calm and fact based article without the journalistic flamboyance aimed at the weak minded.

BandGap Tue, 05/15/2018 - 21:04 Permalink

Oh look, more colored lines on charts! What is the point of this bullshit?

Fuck you, Sprott. I'll buy when I buy. I'll never get a "newsletter" that tells me what is obvious. And I'll never buy my PMs from you.

Now fucking go away.

 

Scrot Tue, 05/15/2018 - 23:54 Permalink

I told you-- I told you-- I told ALL of you: GOLD IS THE WORST INVESTMENT IN HISTORY. Stop listening to forecasting and investment advice from companies that exist to sell gold. 

 

mosfet Scrot Wed, 05/16/2018 - 04:48 Permalink

I've done far better trading silver, mining and gold ETFs than any other investment in my life.  Once you realize that (until the decades long manipulation ends) PMs are and will remain cyclical in nature, there's lots of easy money to be made even lazy swing trading this sector with nothing more than capital and patience.

I'd clue you in on how to make easy peasy 25% returns multiple times a year with nothing more than pre-automated smart trades but nobody likes an 'I told you so'.

In reply to by Scrot

SoilMyselfRotten mosfet Wed, 05/16/2018 - 07:43 Permalink

Some patterns, even daily ones are so glaring it almost mocks us. How is it that nearly every single night, just after midnight, the asian markets(maybe) push the price of gold down $5-8. Probably 4 out of 5 nights, if not weeks of 5 of 5. Granted, you'd need future accounts to play it, but my larger point is how can it possibly move this way unless the market is manipulated?

In reply to by mosfet

Bahamas Wed, 05/16/2018 - 04:22 Permalink

Gold is like the spare tire in the back of your car. You hope you'll never have to use it, but in case of a flat, you're glad you have it.

JLarryL Wed, 05/16/2018 - 08:15 Permalink

The dollar looks like it can rally for QUITE a while. That's going to drive down gold. But I'm wondering what sort of international distress we have that's causing this. There's capital flight from Argentina. What else?

DarkPurpleHaze JLarryL Wed, 05/16/2018 - 09:10 Permalink

The writing is on the wall. The euro and EU has outlived it's usefulness.

All the dollar doomers were completely wrong in their self-absorbed fake anslysis. There's still asshat's out there who actually believe the FED is trapped and can't raise rates. 

Those are the same idiots who said QE could NEVER end, interest rates could NEVER go up and that JPM and others were TRAPPED or susceptible to a massive short squeeze. 

Only a dedicated shill or self-destructive, deluded fool would keep pitching the same thing over and over year after year while year pretending to be right the entire time.

What exactly have they been right about??? 

 

 

In reply to by JLarryL

Silver Savior Wed, 05/16/2018 - 10:04 Permalink

*Yawn* Now we will know who the weak hands are. I will be hunting for discounts. At the end of the day it's only about physical gold (and silver).

These prices are a gift from the shitheads.

taketheredpill Wed, 05/16/2018 - 10:05 Permalink

 

So long as the massive accumulation of Debt remains, I remain long Gold.

The debt pile ensures that a sustainable recovery cannot occur, which means more QE in the next downturn.

More QE, given that this experiment is nearly exhausted, means the next QE will be massive and likely a New New Deal type of affair.  

Also likely to be Global as all major developed economies rush to devalue their currencies ahead of their neighbour.

 

SO...whenever I feel some doubt creep into my mind, I just remind myself that "the Debt remains", and until the Debt is gone then this is NOT over.

HoPewGassed Wed, 05/16/2018 - 10:31 Permalink

The USD is no where near the end of this, its last, blowout rally to amazing heights.  Stack PMs on the way up. 

You'll be very glad you did when it falls like a Russian Ruble or even a Venezuelan Bolivar. 
 

I'm sure the US MIC will go quietly.