Gold on the rise, what really lies beneath this move up?

COT Data

Looking at the Commercial Tracker below you see the commercial net positions from the COT Legacy report now at -282,973 contracts net-short. That was reported on July 29. On July 1, their net-short position was at -202,002 contracts, with the 52-week net low at -302,740 contracts. More importantly, view the COT Disaggregated report on the weekly chart below. That is what I view to get a much more transparent view of “big money” in the markets. If you add the Producers and Swap Dealers you will see you will get the above legacy report number. Same goes for adding the Managed Money and Other Reportables. This is futures, and futures go up with sustained increases in buying and selling. Seeing who controls the largest OI in the markets increasing or decreasing buying or selling will give you a great idea of where the markets are heading longer term. See gold at just over $700.00 in late 2008. See where big money is. Get the picture?

No doubt the debt ceiling debacle here in the States has helped bring up gold. But today’s poor manufacturing numbers here will have a longer term affect on gold. Of course increased buying and selling will have the greatest effect in futures. Note: See on the weekly chart how Swap Dealers are actually hedging on gold. In most other markets they are huge speculators. Wonder why?

Commercial Net Tracker instructions: This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A) If the current value is at a 12-month low, the cell will display a red/burgundy background. B) If the current value is at a 12-month high, the cell will display a green background. C) If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D) If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.

If you need help understanding how to understand how to use the COT report to your benefit, please email me at Gary@crbtrader.com and put COT report in the subject line. Please include your name and telephone number in the email.

Proceed to Page 3 for this week's detailed fundementals charts...

Fundamentals

Gold prices pushed to a new record nearest-futures high of $1,628.80 an ounce. Bullish factors include:

1. The debt ceiling debacle, which even if the debt ceiling is raised, may convince the credit rating agencies that a U.S. debt rating downgrade is necessary because of political gridlock and the low probability of a fundamental deficit fix.
2. The ongoing European debt crisis as contagion continues for Italy and Spain, two countries that together are too big for Germany/France to rescue.
3. The weak dollar seen in the past several weeks because of the U.S. debt debacle.
4. Inflation in the developing world that has yet to be brought under control (e.g., China June CPI at a three-year high of +6.2% y/y).

Potential bearish factors include the possible near-term resolution of the U.S. debt ceiling hike and profit-taking after the recent run-up.

Fundamental outlook — Bullish — Gold prices continue to post new all-time highs and remain bullish, although some profit-taking may emerge when there is a U.S. debt ceiling hike. Long-term bullish factors for gold include sovereign debt woes, extraordinarily easy G7 monetary policies and long-term dollar weakness.

Have a prosperous trading week.

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