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John A. Sarkett
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John A. Sarkett is the designer of Option Wizard® software (http://option-wizard.com), the latest iteration of which is Option Wizard® Simplified Options Strategy (SOS) Backtester, which was featured in the July 2011 TASC. He writes frequently on financial topics for publications such as SFO and... More
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  • Bullish COT Data Sets Stage For Higher Gold 0 comments
    May 13, 2013 7:14 AM | about stocks: GLD, GG, NEM, ABX, FCX, SLV

    Each Friday, we put Commitment of Traders data under the microscope. Specifically gold, or (SPDR Gold Trust ETF (NYSEARCA:GLD)"). Most weeks it's pretty ho-hum. Last week -- Friday May 4, 2013 --- anything but

    We did a double take:

    Net commercial shorts minus net commercial longs was in five figures. In the raw data, , it's a calculation we do: we take Comm_Positions_Short_All and subtract Comm_Positions_Long_All. "Comm" stands for commercials, i.e. producers, the likes of ("American Barrick (NYSE:ABX)"), ("Goldcorp (NYSE:GG)"), (Newmont (NYSE:NEM)", (Freeport McMoRan (NYSE:FCX)") et al.

    Today -- Friday, May 10, 2013 -- it is even lower.

    The fundamental reason you should pay attention to these numbers:

    What is the significance of COT data showing a rock bottom "net commercial shorts"? This is the hedge position of ABX, GG, NEM, et al. These are the producers, typically the ones who "know" when to sell short, when to back off and wait for higher prices. They are not always right, and these numbers are not infallible, but usually doesn't pay to bet against them.

    As a side note, JP Morgan this week called for $1700 gold by year end, and an average $1700 through 2014.

    Is sentiment turning -- as well as fundamentals?

    For context, here is some of our historical data, from our spreadsheet Option Wizard® Trading Method Gold:

    Gold price

    COT report date

    Comm_Positions_Short_All minus Comm_Positions_Long_All

    1444.00

    5/10/2013

    87,719

    1470.70

    5/3/13

    95,563

    1471.50

    4/26/13

    104,388

    1405.50

    4/19/13

    141,929

    1487.70

    4/12/13

    143,802

    1578.30

    4/5/13

    142,522

    1598.25

    3/29/13

    158,473

    1607.90

    3/22/13

    162,364

    1592.90

    3/15/13

    142,121

    1579.20

    3/8/13

    133,798

    1576.30

    3/1/13

    137,620

    1581.50

    2/22/13

    132,082

    1607.00

    2/15/13

    160,653

    1669.00

    2/8/13

    174,607

    1668.10

    2/1/13

    167,097

    1659.30

    1/25/13

    195,950

    1685.00

    1/18/13

    185,113

    1663.30

    1/11/13

    178,472

    1656.80

    1/4/13

    188,659

    1657.50

    12/28/12

    187,664

    1655.50

    12/21/12

    202,134

    1696.20

    12/14/12

    214,880

    1704.50

    12/7/12

    217,596

    1715.00

    11/30/12

    252,047

    1752.00

    11/23/12

    236,064

    1712.90

    11/16/12

    224,795

    1730.80

    11/9/12

    207,742

    1676.90

    11/2/12

    222,764

    1712.10

    10/26/12

    232,665

    1720.50

    10/19/12

    247,383

    1755.80

    10/12/12

    266,988

    1778.40

    10/5/12

    269,270

    How long had that been? We went looking and found it: December 12, 2008 (See below). Four and one-half years ago.

    1161.40

    12/4/09

    308,231

    1166.50

    11/27/09

    306,104

    1150.10

    11/20/09

    281,546

    1118.50

    11/13/09

    282,784

    1097.00

    11/6/09

    283,852

    1046.10

    10/30/09

    283,479

    1054.70

    10/23/09

    297,493

    1052.90

    10/16/09

    295,926

    1048.00

    10/9/09

    281,864

    1004.00

    10/2/09

    275,234

    990.70

    9/25/09

    287,610

    1006.00

    9/18/09

    284,661

    1005.70

    9/11/09

    270,797

    994.10

    9/4/09

    216,708

    956.10

    8/28/09

    211,342

    953.90

    8/21/09

    204,545

    953.60

    8/14/09

    222,905

    956.00

    8/7/09

    228,193

    953.20

    7/31/09

    202,521

    952.30

    7/24/09

    204,226

    935.70

    7/17/09

    182,287

    911.70

    7/10/09

    191,307

    932.50

    7/3/09

    197,818

    938.60

    6/26/09

    194,430

    933.70

    6/19/09

    207,368

    938.80

    6/12/09

    225,047

    954.30

    6/5/09

    226,521

    979.10

    5/29/09

    208,136

    956.70

    5/22/09

    183,065

    931.20

    5/15/09

    171,180

    914.50

    5/8/09

    160,445

    885.30

    5/1/09

    153,419

    912.70

    4/24/09

    149,608

    866.80

    4/17/09

    153,509

    880.00

    4/10/09

    153,223

    894.30

    4/3/09

    181,926

    923.00

    3/27/09

    181,289

    952.60

    3/20/09

    175,684

    928.10

    3/13/09

    172,851

    938.40

    3/6/09

    188,401

    942.20

    2/27/09

    190,936

    994.70

    2/20/09

    196,360

    941.10

    2/13/09

    188,712

    911.00

    2/6/09

    177,589

    926.10

    1/30/09

    158,376

    895.20

    1/23/09

    138,931

    841.00

    1/16/09

    141,563

    853.60

    1/9/09

    149,482

    876.80

    1/2/09

    142,773

    877.80

    12/26/08

    132,797

    837.50

    12/19/08

    123,111

    817.00

    12/12/08

    94,872

    756.40

    12/5/08

    101,865

    814.00

    11/28/08

    93,235

    800.20

    11/21/08

    71,116

    741.80

    11/14/08

    69,496

    733.90

    11/7/08

    76,406

    721.80

    10/31/08

    85,076

    731.60

    10/24/08

    108,793

    785.10

    10/17/08

    125,743

    849.90

    10/10/08

    131,307

    834.80

    10/3/08

    140,838

    880.30

    9/26/08

    141,276

    871.30

    9/19/08

    103,022

    763.70

    9/12/08

    93,984

    801.40

    9/5/08

    97,265

    Gold was $817 on that fateful day. One year later, it was $1161. A stunning 42% gain.

    What is a 42% boost on $1470?

    $2088.

    So what is the meaning of today's 87,000 print?

    Could it be telling us that May, 2014 gold may be selling for $2088? Or thereabouts? Could the recent take-down in gold prices be the massive head fake so many have written about?

    Stay tuned.

    Disclosure: I am long GLD.

    Themes: PRECIOUS METALS Stocks: GLD, GG, NEM, ABX, FCX, SLV
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