Gold News

"Vulture Opportunity" in Gold & Silver Prices

Gold and Silver Prices are nearing this analyst's expected support zones...

IT SEEMS LIKE we have been on the sidelines for an awfully long time now, writes Gene Arensberg in his Got Gold Report from Atlanta, Georgia.

With our short-term trading ammo, we've been waiting for gold and silver to correct as it sometimes does this time of year. We thought gold was beginning to correct in our last full report two weeks ago and it has corrected a goodly amount in Euro terms, but in US Dollar terms gold seems to be range bound, knocked around to date only by rumors and rumors of rumors, but range bounded by about $1217 on the upside and the $1180s on the downside.

Silver Prices have seen a similarly tight range for the period, but we sense the trading for silver has been a teeny bit stronger than gold. Silver saw good resistance in the $18.50s, but saw aggressive bidding in the $17.50s since our last full report. It may not seem like it with a Friday sell-down for the metals, but both gold and silver turned in slightly higher highs and lows for this most recent thin-liquidity summer trading week.

We are once again beginning the upcoming thin liquidity summer trading week on the sidelines with our short-term metal trading ammunition, glad as ever that we hold physical metal for longer-term purposes, still waiting for a sure-enough vulture opportunity to reenter with our short-term trading ammunition.

Last week both gold and silver ended not all that far from the upper ends of our expected support zones. We will go into the reasons why a little later, but if precious metals are driven lower and into our expected zones of potential support we are very likely to take long positions as we mentioned in our last full report two weeks ago.

If we do get the chance for reentry just ahead, as always it will only be with appropriate new-trade trading stops for peace of mind and protection. We think there are ample arguments to support where we mark potential technical support for gold and silver, but if those support zones prove to be just plain wrong, then we want out – and quick – with our trading capital.

Longer term, we still see nothing which undermines the secular bull market thesis for gold metal, but short term we think traders should consider tightening their trading stops for gold, Silver Prices and larger mining shares.

The fact that gold has corrected strongly in Euro terms, but more or less moved sideways in US Dollars over the past two weeks is a "tell". We could be wrong, but we strongly suspect that the gold correction is not yet over; we see the potential for further downside, but we suspect that downside is now more limited. We will get to why in the course of the rest of this offering.

Our indicators suggest that significant to strong dips for gold may be bought with confidence, but as always, only with appropriate new-trade trading stops for peace of mind and protection. They are merely indicators, not a functioning crystal ball.

As for silver, we look for overwhelming support to show somewhere in the $16 to $17 range, but it would not surprise us if silver were to show support right here in the $17.80s (equivalent to $17.40s for the SLV silver ETF trust). Given silver's relatively high volatility we are more likely to scale into a new position with silver than we are with gold.

Meantime in the latest Commitment of Traders data, courtesy of US regulators the Commodity Futures Trading Commission (CFTC), we see the current positioning of large commercial players as more bullish than bearish.

As a proportion of total open interest, the large commercial traders (acting for miners, refineries and bullion banks) now hold 43.7% as their "net short" position (bullish contracts minus bearish contracts). But we think it suggests that the largest gold "hedgers" are taking advantage of most any dip in the Gold Price to reduce their relative net short exposure.

Using just Commitment of Traders reporting days (the Tuesday) as a guide, over the past two COT reporting periods the large commercial traders have covered or offset 41,608 contracts or 14.3% of their collective net short positioning as gold metal moved a net $28.29 or 2.3% lower to $1212.21 an ounce. For each Dollar lower in price, the large commercials reduced their net short positioning by about 1,470 contracts using net figures. We see that as a fairly "hot" pace of LCNS reduction.

That doesn't necessarily mean that gold won't continue to sell off even more. It can and it might, but it certainly does mean that the largest "hedgers" and short sellers of paper gold closed out a big chunk of their collective net short positioning on a $50 drop in the Gold Price two weeks ago, and didn't put the shorts back on as gold recovered $19 last week. We would call that another "tell".

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A land developer, professional numismatist, self-taught bullion trader and investor since 1980, Gene Arensberg analyzes technical and fundamental developments in the precious metals markets. In 2000 Gene started sharing his own market research with fellow traders and fund managers. Those email reports evolved into his popular Got Gold Report, a biweekly look at important indicators for gold and silver published on the web. Gene's more in-depth market reports, insights and trading ideas are available at GotGoldReport.

See the full archive of Gene Arensberg.

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