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Bottom Line

The bottom line from the indicators in this report is that this most recent sell down for the two most popular precious metals was without meaningful negative money flow from metal ETFs, there was no telltale spike higher in either commercial net short positions or in longer term forward futures open interest ahead of it, so the odds probably favor a significant surge in bargain hunting and dip buying of both gold and silver near term. All traders will want to take a good look at the positioning of the largest futures traders in this coming COT report (to be released by the CFTC Friday afternoon) to see how their positioning changed as of this Tuesday 3/25 with gold trading in the $930s. That report will likely be interesting and probably more than a little enlightening.

Sunday s offering of the Got Gold Report had additional commentary about the size and suddenness of the precious metals price moves for those who may have missed it, and that report strongly suggested that now is a good time to be positioning for the next bull moves for precious metals by taking advantage of the now very beaten up small miners and explorers.

Now for the details from some of the indicators.

COT Changes. In the latest commitments of traders report (COT) for the close of business Tuesday, March 18, just ahead of last week s big plunge for gold and silver, the COMEX large commercials (LCs) collective combined net short positions (LCNS) actually fell 4,130 contracts or 1.7% from 243,258 to 239,128 contracts net short Tuesday to Tuesday as gold added $8.66 or 0.89% from $973.00 to $981.66.

On Monday, 3/17 gold peaked intra day at $1,032.80 before aggressive profit taking showed, closing at $1,003.70. On Tuesday, the next day, gold tested a lower high of $1,012.55 on the cash market before strong selling pressure showed again, this time convincingly, driving the price down to the $970s before a minor rebound to close at $981.66. It was the lightening fast downward surge on Tuesday, fully $60 off the Monday peak which probably convinced the hottest of the hot money that it was time to cash in. And, cash in they did in droves on Wednesday and Thursday, right after the COT reporting cutoff, so the COT data for this week doesn t capture what happened since gold closed in the $980s.

Gold since sold down as far as $905.49 on Thursday ($127.31 lower than its Monday peak) before limping off for Good Friday with a last trade of $911.26 on the cash market. For the record, the net change for cash market gold for the holiday shortened calendar week was a net $91.40 lower or 9.1%.

As of Tuesday s COT reporting cutoff, COMEX gold open interest rose for the first time in three reports. The open interest edged up 7,020 from the previous week s 482,035 to 489,055 total open contracts.

Long term April 2009 and beyond COMEX forwards inched up 705 contracts to 52,289 lots open, which is a still very low 10.69% of total open contracts. If the hedgers knew a gold plunge was coming, they sure didn t tip their hand with a surge in long forwards. (In other words, they did NOT see a big plunge coming and did not position for one well in advance as they have in the past.)

Although the LCNS was in near record territory and had been for some time, it didn t jump higher at all ahead of Tuesday s big gold fall. Indeed, relative to the total open interest the combined collective commercial net short position actually declined a little just ahead of the sell down from 50.46% to 48.90% of all COMEX gold contracts.