Is Gold Signaling The Next Financial Crisis?
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By Rory Hall
Gold and silver have been sold down pretty hard since April 18th. But the structure of the weekly Commitment of Traders report, which shows the long and short positions of the various trader classifications (banks, hedgers, hedge funds, other large investment funds, retail) had been flashing a short-term sell signal for the last few weeks.
The net short position of the Comex banks and the net long position of the hedge funds had reached relatively high levels. Except for Thursday (May 4th), almost all of the price decline action was occurring after the London p.m. gold fix and during the Comex floor trading hours, exclusively. This tells us all we need to know about the nature of the selling, especially given the enormous amount of physical gold currently being accumulated by the usual Eastern hemisphere countries.
The table above calculates the Comex banks’ paper gold positioning going back to 2005. As you can see, currently the net short position and the net short position as a percent of total open interest had reached a relatively high level. This typically happens when the banks engage in raiding the Comex by unloading massive quantities of paper gold in bursts in order to trigger hedge fund stop-loss selling. It serves the dual purpose of pushing down the price of gold and providing a relatively riskless source of profits for the banks.
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