Having broken out convincingly into new high ground, gold and silver have now paused for breath. Despite the sharpness of this week’s reaction, their performance indicates good underlying strength.
This is not to say there is no speculative froth – of course there is. Rather, speculators play a distant second fiddle in this market. Bullion is still doing what it has been doing for the last year: when the commercials on Comex hit the price it backs off rapidly on little volume, until someone very big takes the opportunity to clean the market out. It becomes another ratchet on the torturer’s rack for the commercial shorts, who find that every time this happens they end up being stretched further.
On last week’s rise there were early signs of panic, as the commercials attempted to reduce their exposure. However, the commercials’ net short position on Comex is still a very high 933 tonnes. Convention suggests that the commercials know best, and even if they have an extreme position, they will still crush you. And indeed, the big commercials, being too big to fail and with the comfort of the Fed’s antipathy to gold, could increase their short positions even further. This is now developing into the biggest game of chicken the markets will probably ever see. (more)
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