The death cross on the dollar’s trade-weighted index (shown above) anticipated Powell’s speech, falling 1.6% in the last week. When it breaks the 100 level, a target of 90 is in play. But after its recent sharp falls, a countertrend rally is likely first, as short-term traders short of the dollar take profits. And they could be badly squeezed before the dollar’s downtrend resumes, particularly with the other currencies in the basket having their own troubles.
Gold is on the other side of the dollar trade, and just as the dollar’s TWI looks very bearish, gold’s chart is correspondingly bullish.
But here again, a brief pullback might be in order if a temporary recovery in the dollar encourages hedge funds to take profits on their dollar bear positions, and for the Swap category on Comex to mark gold prices down in an attempt to trigger hedge fund stops.
All this is very short-term and should be of little interest to those who want to get out of dollars and sleep at night. For stackers, if this pullback happens it could be the last decent chance to buy gold under $2500. Of more interest is what last week’s Commitment of Traders figures told us.
As of last Tuesday, the Managed Money category was net long 193,305 contracts, somewhat overbought confirming that conditions exist for some profit-taking. The close correlation between the price and the Managed Money net position since late-2020 in the next chart is clear.
The Swaps will be desperate to contain their shorts, with their exposure at record levels. The next chart is of their net short position.
The reason the Swaps are so far under water is that Producers (mines and refiners) are not hedging production much (net short only -63,995), leaving the short burden heavily on the Swaps. Aside from a minor correction in the next week or so — and even that might not happen — bullion bank trading desks are in danger of losing control of the gold contract entirely.
White Rural Rage: The ...
Best Price: $9.36
Buy New $18.00
(as of 12:30 UTC - Details)
The other feature worth mentioning is that demand reflected in withdrawals from the Shanghai Gold Exchange is moderating at these prices, with premiums disappearing. But this is essentially a retail market with gold withdrawn to manufacture jewellery and small bars. Chinese banks have no need to pay SGE premiums, sourcing bullion directly in London, Switzerland, and New York. On Comex, 68.53 tonnes have stood for delivery since 31 July, and the equivalent of 256.46 tonnes have been “exchanged for physical”, but the exact tonnage cannot be quantified.
The big news in silver is that Samsung is reported to have developed a new solid-state EV battery requiring about 1kg of silver per vehicle. It is far superior to lithium batteries in terms of promised range, short charging time, and reduced weight. If Samsung is doing it, expect the Chinese manufacturers to follow. What price silver then?
Reprinted with permission from MacleodFinance Substack.
