Gold & Silver Price Short Term Outlook – 11th March 2013

It became a tradition recently – our weekly review of the positions of the large traders in gold and silver based on the weekly Commitment of Traders Report. Why do we spend time and effort on this matter? Because it is the epicentre of the short term price setting. Compare it with the stock market; like it or not, as soon as the big money takes a position, prices follow in the same direction. Read our Crash Course In Short Term Gold & Silver Price Forecasting to gain insights in the basics.

Gold Outlook

The most noteworthy chart of the latest Commitment of Traders Report, is the one that shows the difference between the speculative longs and the shorts, while at the same time comparing it with the total open interest (all short and long positions together, including the speculative AND the commercial participants).

gold_net_spec_length_to_total_open_interest_march_11_2013

As we explained in our “Crash Course“, as soon as this indicator falls below the line at 19%, it flashes a bullish signal.

As Adam Hamilton from Zeal Research noted in his latest article, excessively high short positions by speculative participants are the most bullish signal from a contrarian point of view. The short positions of small speculators have not been this high since 1999. The next chart shows how the long vs short positions of speculators are comparable with the readings during the 2008 crash.

gold_speculative_positions_march_11_2013

Silver Outlook

The picture in silver is becoming bullish. The most noteworthy chart is the same one as in gold.

silver_net_spec_length_to_total_open_interest_march_11_2013

As we explained in our “crash course”, as soon as this indicator falls below the line at 12%, it flashes a bullish signal.

The short positions of small speculators are at record highs, not seen since 1999. The next chart shows how the long vs short positions of speculators are at readings that were followed by short to medium term rallies (February 2009, December 2011, June 2012). In 100% of the cases in this gold bull market, excessive positions of speculators have been wrong, which makes it a very reliable contrarian indicator.

silver_speculative_positions_march_11_2013

Total Open Interest

It is our intention to bring all the facts, the bullish AND bearish ones. As a general rule of thumb, much higher prices can be expected when the total open interest is low (not many participants in the market). At this point, however, mainly silver and to a less extent gold have a fairly high open interest from a 5-year average point of view. Is this signal stronger than the previous ones? It shouldn’t; the trend in the coming weeks needs to be followed up closely.

gold_silver_open_interest_march_11_2013

US Banks: net short

A last set of data that show a positive development: the net short positions of the US Banks. As the data show, the net short positions have declined significantly in gold  (source: Bank Participation Reports). In silver, after a spike in February, the net shorts are again lower (at the lows of this year currently).

US_Banks_net_short_gold_silver_march_11_2013

Conclusion: The sentiment is extremely negative (in the media, fed by the outlook reports of large financial institutions, but even hardcore bulls are throwing in the towel). The data of the large traders, however, show a different picture for the time being.

Disclaimer(s): This article is primarily meant for people that follow the metal prices on the short term. It is not primarily meant for owners of bullion that have chosen to preserve their wealth by owning physical allocated gold or silver. The article is not meant to use for any investment decision. Courtesy: K. Xeroudakis, precious metals strategist, mentored by Ted Butler.

Follow the gold and silver price evolution week on week. Read the previous updates.

Gold & Silver Traders Positions on March 5th – Weekly Update  (March 4th)
This One Chart Shows Gold Is Bullish  (February 25th)
What’s Next For Gold & Silver – Some Signals  (February 23d)
Gold – Here Is The Good News  (February 21st)

Receive these articles per e-mail

Subscribe for the free weekly newsletter and receive 3 papers about physical precious metals investing