Are Banks Closing their Shorts on Gold and Silver?
In the past few weeks gold and silver have both broken out of their year-long consolidating trading ranges. This breakout came shortly after the announcement that JP Morgan and other banks would close their proprietary commodity trading desks in order to comply with a new "Volker Rule" which states that banks can either trade their own capital or their client's capital, but not both. This news has led to speculation that JP Morgan and others would be forced to close their short positions in gold and silver which has been well documented.
This speculation is overly optimistic, and the evidence proves to the contrary. From August 24th to September 14th the net commercial short position has increased from 82,158 to 94,825. This short position has most likely increased even more since then although it hasn't been reported yet. Gold's net commercial short position also increased from 436,829 to 464,388.
As most gold and silver traders know, this pattern is a typical setup for a takedown that occurs a few times every year. The banks that consist of the commercial category in the chart will continue to sell into the rising strength of the metals until it causes a sharp drop allowing them to cover at a profit.
If the commercial banks actually begin to reduce their gold and silver short positions as the price rises then it will be an indicator that they are exiting the market as some believe. The result would be dramatic as hedge funds would likely try to front run the banks and sellers would vanish. The structure of paper precious metals markets have made this outcome increasingly likely, however it is not probable that the commercial shorts will simply walk away without a fight. The inevitability of the long run is the least likely outcome in the short run because neither the government, nor commercial banks, nor accumulating smart money want gold or silver to spike higher.
Silver analyst Ted Butler was one of the first to bring this structure to the daylight however he is far too optimistic that government regulation or limiting trading positions will lead to this event. It is more likely that the futures market is closed than banks voluntarily ending their game. They may close their proprietary desks and move the positions to another legal entity.
One reason to be cautious is that gold has not touched its 200 day moving average in over a year. This simply means that the gold price has been very strong, but indicates an extended move. However extended moves can be life changing events. Gold's formation above its moving averages is beginning to look like Potash circa early 2007 which was the beginning of a 10 fold move in its price.
Historical evidence indicates that the precious metals will most likely see a sharp correction in the coming weeks. However, if they don't then Jim Sinclair could be collecting money on his $1 million bet early.
For more news and articles about investing in gold and silver visit Tradeplacer.com
This speculation is overly optimistic, and the evidence proves to the contrary. From August 24th to September 14th the net commercial short position has increased from 82,158 to 94,825. This short position has most likely increased even more since then although it hasn't been reported yet. Gold's net commercial short position also increased from 436,829 to 464,388.
As most gold and silver traders know, this pattern is a typical setup for a takedown that occurs a few times every year. The banks that consist of the commercial category in the chart will continue to sell into the rising strength of the metals until it causes a sharp drop allowing them to cover at a profit.
If the commercial banks actually begin to reduce their gold and silver short positions as the price rises then it will be an indicator that they are exiting the market as some believe. The result would be dramatic as hedge funds would likely try to front run the banks and sellers would vanish. The structure of paper precious metals markets have made this outcome increasingly likely, however it is not probable that the commercial shorts will simply walk away without a fight. The inevitability of the long run is the least likely outcome in the short run because neither the government, nor commercial banks, nor accumulating smart money want gold or silver to spike higher.
Silver analyst Ted Butler was one of the first to bring this structure to the daylight however he is far too optimistic that government regulation or limiting trading positions will lead to this event. It is more likely that the futures market is closed than banks voluntarily ending their game. They may close their proprietary desks and move the positions to another legal entity.
One reason to be cautious is that gold has not touched its 200 day moving average in over a year. This simply means that the gold price has been very strong, but indicates an extended move. However extended moves can be life changing events. Gold's formation above its moving averages is beginning to look like Potash circa early 2007 which was the beginning of a 10 fold move in its price.
Historical evidence indicates that the precious metals will most likely see a sharp correction in the coming weeks. However, if they don't then Jim Sinclair could be collecting money on his $1 million bet early.
For more news and articles about investing in gold and silver visit Tradeplacer.com