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What Do The Banks Know?
Much is being made of the current makeup of the Commitment of Traders report for Comex gold. However, similar historical irregularities are appearing in other assets, too. Thus the question, are The Banks setting the stage for a wildly volatile second half of 2018?
First, an update on the Commitment of Traders report for Comex gold. For the survey week ended Tuesday, August 14, more astonishing changes appeared within the general CoT structure:
- The Large Speculator (hedge funds, managed money, trading funds) NET position is now SHORT 3,688 contracts. This is the first reported NET short position for this group since December of 2001.
- The Large Speculator GROSS short position is 215,467 contracts. This is a new ALLTIME high.
- The Commercial (Big Bank) NET short position is just 7,350 contracts. This is the smallest Commercial NET position since the CoT report surveyed on December 1, 2015.
- The Commercial GROSS short position of 171,545 contracts is the smallest since the survey of January 5, 2016.
- The Large Speculators are now GROSS short 43,922 contracts more than The Commercials. This is a new ALLTIME record.
And consider this, too. That 215,467 contract GROSS short position for the Large Speculators is truly an unbacked position. This group has no metal to deliver, nor do they contract with miners for future delivery. Instead, they are simply speculating on the future direction of the Comex derivative price. As a reminder, each Comex contract was originally designed to represent the potential obligation to take or make delivery of 100 ounces of gold. Thus, with a GROSS position of 215,467 contracts, the Large Speculator category is short 21,546,700 ounces or about 670 metric tonnes.
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Total U.S. Debt and Gold
After rising together through 2012, the past five years have seen a massive divergence between the total amount of accumulated U.S. government debt and the price of COMEX gold. When, if ever, will we see this correlation reappear?
After falling together through the late 1990s, the price of COMEX god and the total accumulated U.S. debt began to rise together since 2002. With the help of Nick Laird at GoldChartsRUs, we’ve been able to plot this relationship on the chart below:
As you’ll recall, and as you can see in the chart above, massive U.S. military efforts and the economic collapse during The Great Financial Crisis led to a surge in the total US debt from $6T to $15T in the ten years between 2003-2012. And what happened to the price of COMEX gold over the same time period? It moved up from $400 to $1,800 per ounce.
However, a (not so) funny thing happened in late 2012. The price of COMEX gold began to consistently fall, this despite the over $1T QE3 program that The Fed ran from late 2012 to early 2014 AND a continuing surge in total U.S. debt from $15T to $20T.
Of course, we can debate WHY and HOW this occurred, but that’s a topic for another day. For now, let’s just take another good, long look at that chart of total debt and gold.
It could be said that, beginning with The Great Financial Crisis, gold got ahead of itself. Price had consistently risen with the accumulated debt through 2009 but, by 2011, it was considerably above the established trend. In the correction that followed and ended in 2015, you might note that price fell to roughly the same distance below the established trend. Perhaps this visual aid will help?
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