Gold producers haven’t been this short of gold futures since a couple of months before the April 2013 gold crash:
Gold (5-year) with Commitments of Traders (below)
So we have hedge funds and CTAs heavily long on one side of the gold trade, and gold producers heavily short (~$16.3 billion) on the other side of the trade. The last time producers held this large of a net short position in gold futures was just before gold fell more than $400/ounce in early 2013. Add this little nugget to this week’s technical breakdown and we have quite a bearish recipe for gold.
Here’s one of our favorite technicians/market commentators, J.C. Parets, in an excerpt from his latest premium market missive on what he’s seeing in gold:
“Seasonally, this is the worst time of the year for Gold. Looking at sentiment, we are really in the middle of extremes and totally in no man’s land. Therefore price analysis is how to best approach this, although with a seasonally bearish bias. We said that the consolidation in Gold prices since mid-February had to resolve in one direction or another and would dictate our next actions. This resolution appears to be to the downside confirming a bearish momentum divergence on the daily timeframe. I think Gold prices are heading back down under 1180 where we want to be buyers. This has allowed the 200 day moving average to slope higher and I think any pullbacks under 1180 can be bought. Closer to 1140 would be even better.”
It’s hard to be bullish on gold here, we see some further sentiment unwind as necessary before a sustainable low can be put into place. The $1180-$1200 area is the first potential buy zone, and we agree with J.C. that the closer to $1140 the better.