Posted by on October 11, 2016 8:40 pm
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Categories: Acting Man Economy gold Gold Sector Correction – Where Do Things Stand? Metals News US News

by Pater Tenebrarum, Acting Man:

Sentiment and Positioning

When we last discussed the gold sector correction (which had only just begun at the time), we mentioned we would update sentiment and positioning data on occasion. For a while, not much changed in these indicators, but as one would expect, last week’s sharp sell-off did in fact move the needle a bit.

The commitments of traders (CoT) report of Friday shows us the situation as of Tuesday last week. The net hedger position shown in the chart below is the inverse of the total net speculative position. In addition, the chart includes the net position of small traders:

At its current level of 271,000 contracts net, the total net position of speculators in the legacy CoT report is down approx. 70,000 contracts from its high in early July. A bigger shake-out may be required, but the enthusiasm of small traders (red line, rhs) has already been dented quite a bit.

The bulk of the price damage was in fact done on Tuesday, and volume was quite chunky as well. Volume continued to be very large over the remainder of the week though, so it is probably fair to assume that there have been further shifts in the net speculative position since then. Below is a 30-minute chart of last week’s action in the most active December contract that includes trading volume.

Last week’s trading in the December gold contract. Volume remained elevated throughout the week, with especially large spikes seen on Friday after the payrolls report.

On a daily chart of gold it can be seen that prices have just hit the upper boundary of a support zone, which happens to coincide with the 200 day moving average. One can probably expect that at least a bounce will develop from here, especially as gold has gone down nine days in a row as of last Friday.

Note also: the 200-dma is currently rising, which distinguishes this pullback from similar sell-offs seen during the 2011 – 2015 bear market phase. It is quite normal for a new bull market to revisit (and even briefly undercut) its 200-dma from time to time, especially after it has spiked to levels far above it.

The CoT data shown above have already suggested for some time that such a shake-out would eventually have to happen.

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