Tuesday, October 4, 2011

Smart Money Remains in Gold and Silver

The shakeout we've all been 'worried' will happen has happened.  This is not the time to believe or trade with the herd.  Here's an article that points out the obvious the those who will gather wealth in the next upward movement of the gold price.

I am looking for this move to be foretold by a rise in gold and silver producers.


The article:

Gold and Silver Speculators Exit Market as Smart Money Remains
By Jordan Roy-Byrne Oct 04, 2011 8:00 am

The recent carnage in equities and in Europe precipitated the selloff in precious metals which has caused all the remaining speculators to exit the market.

My firm uses a combination of sentiment analysis and technical analysis in market timing which often gets a bad name in the retail crowd, which tries to time the market. Meanwhile the smart money utilizes market timing to weigh risk and reward. It’s rather simple when you acquire the skills, and it helps you understand markets. Recently my firm had been quite bullish on precious metals but thought we were in a small corrective period. We were wrong, as the sector has suffered from Europe’s version of 2008. The good news is our market timing work leads us to believe that the worst is soon to be over and this is an opportunity on the long side for those who have a twelve month time horizon.

Below is the Commitment of Traders (COT) for gold (data is as of last Tuesday). The commercial short position has dropped nearly 50% in the last few months. The commercials (the smart money, the end users and producers) are positioned more bullish than any other time in the past two years. This is another way of saying the speculative long position is at a two year low. Meanwhile, open interest is 28% off its high and close to a two year low.

In silver, we see that the commercials are net short only 24K contracts. This is the lowest since December 2008. Open interest is 35% off its high and at its lowest point since the end of Summer 2009.

Read full article here...

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