Gold Hits New Record High and There's More to Come

Mish

Gold futures just touched $1928 taking out the Intraday high of $1923.70 in 2011.

11-Week Run 

Gold is on a huge 11-week run. The last time gold did that was at the 2011 high. 

Is a pullback in order? A Gold COT chart says otherwise.

Gold COT Chart

Gold COT Chart Still Bullish

Understanding Futures

In the futures world there is a short for every long.

The first horizontal box has Large Specs, Small Specs, and Commercials. This is It's Old COT reporting. 

The second box distinguishes producers from the swap dealers (i.e. market makers). This is New COT reporting.

Those are the actual data links for the above chart.

Large Specs, Small Specs, Unreportable Positions

Large specs are generally hedge funds that trade futures in size. Small Specs are typically individual traders. 

Sometimes small specs are called unreportable positions. If you are big enough you have to tell the CTFC what your position is. 

Producers

The producers mine gold and sell it via futures. They are always short. 

Swap Dealers

The Swap Dealers are commercial market makers who take the other side of the trade. They do so because as Market Makers they have to. It's their business to make a trade.

The swap dealers are hedged. They do not much care if prices rise of fall. If that was not the case, they would be blown out of the water on big, sustained rallies. That does not imply honesty as the dealers have been caught manipulating. Rather, they manipulate if their hedges get out of balance or they see a chance to profit. The latter could be in either direction, up or down in the price of gold.

Commercials 

The commercials are the Swap Dealers + the Producers + the Manufacturers or Jewelry maker who buy gold to use it. It is a confusing mix which is what brought about the disaggregated reports (the New Cot reporting).

We frequently hear things like "commercials covered" their shorts or the commercials are the "smart money". 

That is nonsense. The producers don't buy gold and the swap dealers are hedged (long gold and short equivalent futures). There is nothing "smart" about being forced to take the other side of a trade.

This subject comes up all the time.

For example, on December 27, Tom McClellan said "Gold COT Data Call for More of a Drop"

Gold was at the $1500 level.

On March 12, McClellan said Gold Moving Lower Despite Covid-19.

McClellan said "Gold prices should start trending down now, and for the next 5 years, according to this week’s chart."

Managed Money

Managed money is a way of disaggregating the Big Specs from the Commercials. Some people consider the big specs to be the "smart money" and the small specs to be the "dumb money".

Reporting Frequency

Cot reports come out on Friday for the previous Tuesday. Thus the above chart (except for the price, reflects Tuesday, July 21. 

Every week, we do not know what happened between Tuesday and Friday. 

Room to Run

Analysis of the Gold COT Chart suggests there is still plenty of room left to run. Details show why.

Smart Money 2020-07-26
  • Normally, gold advances in the short- to mid-term as the big specs or managed money expands position. 
  • The opposite occurs during long liquidations.  

That is what prompted me to write on April 6, 2020 Gold's New Breakout is Very Bullish: Here's Why.

It is bullish that gold advanced with smart managed money missing most of the move. At some point FOMO kicks in.

A pullback can happen at any time, including now, but the fundamentals for further advancement: monetary printing, COTs, and of course faith in central banks are firmly in place.

Mish

Comments (30)
No. 1-15
tokidoki
tokidoki

I expect Silver will reach 50 before the end of next month.

phatmaster
phatmaster

Hi ho Silver!!

Stuki
Stuki

"Some people consider the big specs to be the "smart money" and the small specs to be the "dumb money"."

...And anyone dumb enough to believe there is even a lick of difference in how smart different people are at picking random numbers, are definitionally the dumbest-of-all money....

truthseeker
truthseeker

Good grief Mish only 4 comments here so far after all these years of “got gold”? Two things come to my mind here. First is that both silver and gold are waaay overbought here with the RSI at over 80 on each I’m guessing so crazy to chase but can stay overbought in this panic situation for longer than we think. Yet I have to be real careful because of what the man himself says here at the beginning of sorrows in the last days-check it out-James 5:3.

FromBrussels
FromBrussels

Gold up ? ....or is it rather about the $ losing value?

amigator
amigator

Shhhh... We don't anyone to notice......👍

mrutkaus
mrutkaus

A guy at peak prosperity thinks the gold price the result of US-China tension. I've hinted here a couple times (once someone deleted) that showman Trump has plans for a US-China war around election day.

Cocoa
Cocoa

Silver is trash...an industrial metal. When people figure out we are in a depressionary deflation only gold and maybe USD does well as people are getting to safe harbor. Only after clearing positions can you have the currency crisis that everyone is waiting for

Tony Bennett
Tony Bennett

The only thing I know about gold is that it is an asset (not money). Therefore, treat it as such. IOW, there is a time to buy it ... and a time to sell it. Good luck!

ToInfinityandBeyond
ToInfinityandBeyond

$Trillions of stimulus, and I use that word loosely, does not matter until suddenly one day it does. Near zero interest rates and debt levels to infinity suggest that sooner or later investors will lose confidence in the mighty USD. Until then the cost of holding gold versus bonds suggest gold has a ways to run.

PecuniaNonOlet
PecuniaNonOlet

My only hope is gold establishes a new baseline around $2000 since that is where it needs to be to reflect inflation over the last 40 years. It seems a bit curious that as we approach nearly 8 billion people om the planet, the demand for the metal hasnt gone up enough to establish a new normal at a higher price. Maybe this time will be different? My gut is telling me once corona dies gold will go back down significantly.

niceconstable
niceconstable

"...but the fundamentals for further advancement: monetary printing, COTs, and of course faith in central banks are firmly in place."

Are you thinking inflation? Inflation gold?

niceconstable
niceconstable

Thanks for the lesson. I really appreciate that. I always wondered who the players were.

PicoManning
PicoManning

Silver and gold will continue upwards. The FED has failed on the Interest Rate stimulation. There's too much debt to finance so the financial system is overwhelmed. Rates have to be near zero. Below zero, we know, does more harm than good. The economic powers find themselves swimming underwater, searching for an opening. Oxygen! We need oxygen. QE is financial oxygen. But how much QE can we take? History offers clues. For investors Gold and Silver is oxygen and they will buy what they can when they can.

MATHGAME
MATHGAME

It seems to me that without the ability to use gold as currency, or better, legal tender in the US, "investing" in gold or silver is little different than investing in bitcoin i.e. little better than "investing" in something/anything! that is hoped can one day be more truly useful within the economy than as just another name to gamble on in the Corrupt Casino games some disingenuously, even duplicitously, call "markets".


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