by John A. Sarkett
Option WizardŽ Scan
CAPTION. Graphic analysis by Option WizardŽ financial engineer Franklin S. Sarkett. This chart shows that over the last 110 weeks, commercial net short position as reported in the weekly Commitment of Traders Report declined more than 10% 14 times. (This past Friday, June 15, 2007, short interest dropped 28%.) Each time this happened, spot gold was higher 12 weeks later. The average 12 week move in spot gold was +8.56%. An average move, this time then, would put gold at $710.52 Sept. 15, 2007. Will it happen? Stay tuned........
Commitment of traders (COT) data released Friday, June 15, 2007 at the customary 2:30 p.m. Central Time indicates we may be on the brink of a significant move in gold.
Net commercial short interest dropped significantly -- 28%.
As per the chart above, when short interest declines 10% or more, week over week, spot gold moves up 8.56% in 12 weeks on average.(see table below for data history)
Why do so many follow the COT net commercial short interest indicator? In gold, Big Commercials "know." In the last 110 weeks, when short interest dropped 10%, gold moved higher 14 of 14 times.
This indicator, plus recent firming in gold may presage another positive move.
Why does gold look higher? Six reasons jump out:
- A FIRMING MARKET. Last May-June, gold plunged a bone-crunching 710 to 560, 22%. This year 691 to 645, only seven percent (so far), one-third.
- BONDS. Lower bonds, higher interest rates may be another reason. World smart money may be on the move, or soon to be on the move, even some of that fabled $1.2 trillion in China. The well-publicized call from the likes of PIMCO's Bill Gross is for still higher interest rates.
- INFLATION. Higher rates mean more inflation, benefiting gold.
- SEASONALS. Seasonals are very strong in gold. Summer is the worst. The summer bottom may already be in.
- SENTIMENT. Many, including gold bugs, have thrown in the towel -- a contrary bullish indicator.
- COMMITMENT OF TRADERS. Reiterating, the ABXs and NEMs and other big miners of the world have just lightened their hedge.
History says this means higher prices ahead.
Putting these six all together: getting a sense that something good -- for the precious metals community -- this way cometh. No technical indicator is flawless; as always, time will tell....stay tuned. J.S.
| GOLD | CHANGE | DATE | COMMERCIALS NET SHORT | CHANGE | % CHANGE |
| 654.50 | 8.90 | 6/15/07 | 98,505 | (38,391) | -28% |
| 645.60 | -25.00 | 6/8/07 | 136,896 | 17,701 | 15% |
| 670.60 | 15.70 | 6/1/07 | 119,195 | (5,521) | -4% |
| 654.90 | -5.70 | 5/25/07 | 124,716 | (23,077) | -16% |
| 660.60 | -9.50 | 5/18/07 | 147,793 | (25,171) | -15% |
| 670.10 | -16.80 | 5/11/07 | 172,964 | 6,311 | 4% |
| 686.90 | 8.00 | 5/4/07 | 166,653 | (5,620) | -3% |
| 678.90 | -12.70 | 4/27/07 | 172,273 | (2,825) | -2% |
| 691.60 | 6.80 | 4/20/07 | 175,098 | 21,894 | 14% |
| 684.80 | 11.00 | 4/13/07 | 153,204 | 23,706 | 18% |
| 673.80 | 10.50 | 4/6/07 | 129,498 | (9,026) | -7% |
| 663.30 | 7.10 | 3/30/07 | 138,524 | 8,630 | 7% |
| 656.20 | 4.00 | 3/23/07 | 129,894 | (1,022) | -1% |
| 652.20 | 2.00 | 3/16/07 | 130,916 | (6,395) | -5% |
| 650.20 | 4.40 | 3/9/07 | 137,311 | (46,439) | -25% |
| 645.80 | -37.10 | 3/2/07 | 183,750 | 15,600 | 9% |
| 682.90 | 14.40 | 2/23/07 | 168,150 | 2,686 | 2% |
| 668.50 | 1.80 | 2/16/07 | 165,464 | 18,800 | 13% |
| 666.70 | 21.00 | 2/9/07 | 146,664 | 11,053 | 8% |
| 645.70 | 1.10 | 2/2/07 | 135,611 | 17,034 | 14% |
| 644.60 | 9.20 | 1/26/07 | 118,577 | 26,468 | 29% |
| 635.40 | 10.00 | 1/19/07 | 92,109 | 10,435 | 13% |
| 625.40 | 20.30 | 1/12/07 | 81,674 | (30,773) | -27% |
| 605.10 | -30.90 | 1/5/07 | 112,447 | 9,379 | 9% |
| 636.00 | 16.40 | 12/29/06 | 103,068 | 1,336 | 1% |
| 619.60 | 5.00 | 12/22/06 | 101,732 | (14,550) | -13% |
| 614.60 | -12.20 | 12/15/06 | 116,282 | (3,886) | -3% |
| 626.80 | -18.30 | 12/8/06 | 120,168 | 2,444 | 2% |
| 645.10 | 7.20 | 12/1/06 | 117,724 | (1,252) | -1% |
| 637.90 | 16.10 | 11/24/06 | 118,976 | (4,545) | -4% |
| 621.80 | -7.50 | 11/17/06 | 123,521 | 9,065 | 8% |
| 629.30 | 2.10 | 11/10/06 | 114,456 | 22,560 | 25% |
| 627.20 | 29.20 | 11/3/06 | 91,896 | 11,387 | 14% |
| 598.00 | 5.20 | 10/27/06 | 80,509 | (2,629) | -3% |
| 592.80 | 3.90 | 10/20/06 | 83,138 | 536 | 1% |
| 588.90 | 16.70 | 10/13/06 | 82,602 | (9,392) | -10% |
| 572.20 | -26.50 | 10/6/06 | 91,994 | (3,371) | -4% |
| 598.70 | 9.50 | 9/29/06 | 95,365 | (6,560) | -6% |
| 589.20 | 11.90 | 9/22/06 | 101,925 | (8,770) | -8% |
| 577.30 | -32.40 | 9/15/06 | 110,695 | (20,570) | -16% |
| 609.70 | -14.70 | 9/8/06 | 131,265 | 14,020 | 12% |
| 624.40 | 2.60 | 9/1/06 | 117,245 | (10,828) | -8% |
| 621.80 | 9.90 | 8/25/06 | 128,073 | (7,056) | -5% |
| 611.90 | -21.40 | 8/18/06 | 135,129 | (6,796) | -5% |
| 633.30 | -11.00 | 8/11/06 | 141,925 | 3,492 | 3% |
| 644.30 | 9.00 | 8/4/06 | 138,433 | (1,056) | -1% |
| 635.30 | 15.60 | 7/28/06 | 139,489 | (602) | 0% |
| 619.70 | -46.60 | 7/21/06 | 140,091 | 8,044 | 6% |
| 666.30 | 33.70 | 7/14/06 | 132,047 | 9,880 | 8% |
| 632.60 | 19.20 | 7/7/06 | 122,167 | 5,926 | 5% |
| 613.40 | 28.40 | 6/30/06 | 116,241 | (6,030) | -5% |
| 585.00 | 6.60 | 6/23/06 | 122,271 | (12,130) | -9% |
| 578.40 | -29.80 | 6/16/06 | 134,401 | 5,032 | 4% |
| 608.20 | -28.60 | 6/9/06 | 129,369 | (9,940) | -7% |
| 636.80 | -14.00 | 6/2/06 | 139,309 | (9,694) | -7% |
| 650.80 | -6.20 | 5/26/06 | 149,003 | (14,147) | -9% |
| 657.00 | -53.50 | 5/19/06 | 163,150 | (8,183) | -5% |
| 710.50 | 28.10 | 5/12/06 | 171,333 | (387) | 0% |
| 682.40 | 30.80 | 5/5/06 | 171,720 | 4,865 | 3% |
| 651.60 | 19.10 | 4/28/06 | 166,855 | (5,669) | -3% |
| 632.50 | 39.50 | 4/21/06 | 172,524 | 6,575 | 4% |
| 593.00 | 5.20 | 4/14/06 | 165,949 | (4,966) | -3% |
| 587.80 | 6.30 | 4/7/06 | 170,915 |