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Gold market report: managed money chasing the trend

 
# Some stability returned to precious metals this week, with gold rising $14 from $1,564 at last Friday’s low to Friday morning, London time, and silver rising $0.65 from $28. Predictably – on the back of recent falls in precious metal prices – technical analysts, who are basically trend-followers, have turned bearish.

An examination of market action tells a different story. Recent price weakness has allowed the bullion banks to reduce their short positions significantly. So here is a rhetorical question: do you back the bullion banks’ judgement in closing their bears, or that of the trend-followers? A hint: the bullion banks control prices and have larger resources than any other players in the paper markets. Hint number two: technical analysts do not usually make a living out of trading on their own skills, but charging fees for their advice.

Chasing trends in precious metals is often a mug’s game, used by the bullion banks to their advantage. The chart below shows how some of the mugs have taken extreme bets on a falling gold price.

Money managers short positions - gold contracts
 

Never have the money managers (who are mostly hedge fund managers) become so convinced that gold is about to fall heavily. The last time they were excessively short was in May 2012, after gold had fallen from $1,800 three months earlier. Having gone short, the price then rallied back to $1,800 last October, at which point they had cut their shorts back to the long-term average. This time round they are short twice as much.

As a contrary indicator, the short position of these trend-chasing money-managers has had a perfect track record, and therefore its current signal is that gold is due to rise strongly, as they must buy back these positions, amounting to 193 tonnes between 49 managed funds.

An up-to-date chart on the bullion banks’ positions will only be…

Read the complete article at GoldMoney here.

# Here you can see WHY it’s crucial to own physical gold & silver now, and HOW you can buy [and sell] it.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

 

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