It wasn’t really very much — gold measured by the floor close of the CME August gold contract ended the week up $35.2 or 2.22% — but it’s really got people excited.
Particularly chartists. On Thursday, MarketWatch’s Mike Paulenoff asked “Is gold set to accelerate higher?” At Market Trend Forecast, David Bannister asked “Is Gold Ready To Run To All Time Highs?”
And Pring Weekly InfoMovie Report’s Martin Pring observed of the iPath DJ-UBS Precious Metals Subindex Total Return ETN JJP +0.39% : “Quiet action in the precious metals again suggests a big move might be afoot. The two trendline benchmarks are at $85.50 and $82.25. Momentum has gone absolutely and very uncharacteristically flat.”
In the event, gold gained a further $9.90 over Thursday and Friday, JJP closed at $85.77.
A special Pring Weekly InfoMovie Report distributed on Sunday noted this, adding: “This is likely to be a valid signal because it has been supported by a positive signal by the short-term KST. Gold, by the way, has done the same thing.” (KST is a Pring momentum measure.)
Sentiment indicators seem also to suggest that something significant is happening. The Hulbert Gold Newsletter Indicator (HGNSI) gained 12.5 points on Friday but was still a negative 2.3 points.
A correspondent on Bill Murphy’s LeMetropoleCafe reports a calculation that the HGNSI has now been under 20% for 100 days, a record in the history of the index. The previous record, in 2002, was followed by a 10.9% rise in gold in the following two months.
In a quite different part of the gold world, something equally pivotal has been reported.
The Commodity Futures Trading Commission (CFTC) puts out a weekly analysis of the positions of futures traders, the Commitment of Traders report.
On Friday the bullion dealer Standard Bank noted: “There currently is a large short position in Comex gold. Since 2004 (when physically backed gold ETFs were introduced to the market), there have been just five times that the size of the Comex gold non-commercial short positions stood out.”
Three of these short spikes were followed by subsequent gains of 25%, 23% and 36%. The exception was the Crash year of 2008. In that case gold did nothing for three months — and then rose 19%.
A simpler way of looking at the matter is that adopted by the major bullion bank HSBC on Friday: “The Commitments of Traders data … for the week ended July 24 showed a 2.3 million ounce decline in net long speculative positions in gold to 13.62 million ounces, compared to the previous week. …Gold net longs are currently near the 13.1 million ounce lows set earlier this year and leaves room from which gold prices may rally on short covering, we believe.”
Excitement is also mounting because, as LeMetropoleCafe points out, last August gold shocked observers by surging 12.3%. Since Eastern physical off-take became so important, the trade had become used to a sleepy summer, waking up as September approaches.
Last year, the U.S. debt-ceiling crisis was blamed. This year gold is spoiled for choice for potential catalysts between U.S. QE possibilities, the euro saga, and of course, Iran.
The Got Gold Report notes bullish weekly “outside reversals” (lower low, higher close) in both the NYSE Arca Gold Bugs XX:HUI +1.13% and the Market Vectors Junior Gold Miners ETF GDXJ -0.05% , which it favors for leverage.
GGR adds wistfully: “Mining shares remain strongly undervalued and unloved, but that could change quickly.”
Peter Brimelow – MarketWatch – July 30, 2012