Dear Friends,
In looking over the Commitment of Traders data for this week, we find a rather sharp increase in open interest which is a healthy sign. Speculative money began rebuilding their long positions for the second consecutive week as the wholesale long liquidation which began in earnest November of last year has come to an end. That is not the say that we are through seeing fund long liquidation on down days but the ferocious abandonment of longs has reached its peak and is past.
Long side exposure among the speculative community is at relatively low levels which is conducive to a period of consolidation. It will take a sharp move through the $1130 – $1135 level to see another wave of fresh capital coming into this market in a big way. I would not look for any excessive wringing out of speculative longs unless price were to fall below the $1,050 region.
While the chart does not show it as it only reveals “NET” positions, the “Producer/Merchant/Processor/User” provided nearly 28,000 worth of selling over this past week’s interval. The Swap Dealers liquidated 3,700 longs and added 321 new shorts as they were once again on the sell side as price moved higher. Guess who was doing the selling up near the $1,130 level? Yep – the usual culprits, the banks.
The general public, or the small specs were caught selling weakness and were forced to cover some 6,000 shorts as price rallied through their stops.
Summary – the market has been purged and will now attempt to consolidate in its recent range with both bulls and bears looking to gain an advantage. The bullion banks are trying to hold price below $1,130 while decent buying of size has been seen down near the $1,100 level. There is extremely strong buying interest $50 below that near the $1,050 level.’
