Precious Metals Shakeout

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Chart 1: Precious metals are still in well defined pattern of lower highs…

Gold COT 

Source: Short Side of Long

Precious metals continue to puzzle majority of investors. From the bullish aspect, market participants see great value and extremely depressed prices, so it only makes sense that we see a random “guru” or “finance expert” call a bottom in this sector every second month. Recent price action showed us an oversold condition being reached in December 2014, from which a powerful rebound occurred in January of 2015. Obviously, it was only normal to yet again hear calls that the Precious Metals sector bottom has finally been reached.

But the simple analysis of the price action so far disagrees. Neither Gold or Silver registered a higher high on the weekly chart, which usually in its purest form, signals an uptrend. It is quite clear that both metals still keep printing a pattern of lower highs. Finally, as we should be able to observe in both Chart 1 and Chart 2, hedge funds and other speculators piled into the hype and were holding the largest net long position since late 2012. So, should we be surprised at the way both Gold and Silver have reversed in recent weeks?

In my opinion: No.

The recent purchases at the start of the year, of GLD and GDXJ from my newsletter portfolio, have been closed this week for only a very very minimal gain.

Chart 2: …while hedge funds & speculators have piled into the long side!

Silver COT

Source: Short Side of Long