We’ve been bullish precious metals since the 4th quarter last year and even coming into 2019. We’re not gold bugs, thank goodness. The risk vs reward was just skewed in favor of the long side, for a variety of reasons.
One of those was the fact that commercial hedgers were actually net long. They’re never net long, and literally always hedged. For me, these Commitment of Traders reports are usually just noise, EXCEPT when they’re at extremes. We want to pay attention when the rubber-band is stretched. And so we did, and Gold ripped!
Now we have the opposite scenario. Commercial Hedgers last month had on their largest net short position in history (345,145 contracts):
Last time Commercial Hedgers had on net short positions this aggressively was in the summer of 2016. Gold got absolutely destroyed after that. Gold doesn’t have to get killed, but even a sideways grind is not something I’m interested in being a part of.
The Gold Miners agree. This is a perfectly logical area for a digestion of gains for gold mining stocks:
As long as we’re below the overhead supply going back to 2013, there’s no reason to think a serious move higher is happening in the miners.
Therefore, the combination of the Commercial Hedgers / Specs positioning right now with Gold Miners underneath overhead supply, selling Gold until that changes makes the most sense.
This could takes months. I’m in no rush.
I’m still in the camp that ultimately a move higher is coming and we retest the all-time highs in Gold (and eventually much higher). But for now, it’s a no touch tactically.