Here is Cash GOLD which traded sideways this week. As you can see the commercials have thier largest short position ever in this market. There is absolutely no question this market is in an uptrend, and no reason to short it yet. However, this condition is unique, so since I have spent 20 years studying how well commercials have tipped off big moves in the market, I have to be looking for a short here.
I mentioned in a prior post the possibility of a commercial capitulation in this market, similar to what occurred in the energy markets last year. Although there is no sign yet, I did read the other day that the worlds largest mining company was considering taking off their multi-billion dollar hedge. If this were to happen, it would likely cause a very large spike upward, followed by a larger decline.
As volatile as this market has been, this would make it off the charts volatile, and would prove the Gold Bugs right for a time. My call was for this month to be the top, so it is too soon to tell if I am right or wrong since we are trading in a trading range as evidenced by the daily choppy action. So far the Gold Bugs are right and I am wrong, but it is a nine inning game so we will see if we go to 5 or 10,000 here or back down to 500.
The one thing I feel needs to be stated though is that with the very tight correlation between stocks and everything else, if you think stocks are going down, gold will go down. So, a bet on Gold here at this level is the equivalent to buying the SP500 right here. Although not common, there have been other periods in history albeit brief, where this very tight relationship between stocks and commodities has been in play. It will end eventually, but it is anyone's guess when that might be.