It was only June 26 that I reported on the large commercials (LCs) dumping their long positions in the dollar. Such a move can generally can be construed as negative for the dollar and positive for gold and silver as the LCs are considered the best informed (not to mention best connected) traders around. If they see a lower dollar, then they see higher PM prices. However, the LCs have reentered the forex market long the dollar in a big way. Is this negative for gold and silver?
For the last reporting week, the LCs added 8,217 contracts to their long dollar positions, a huge one-week addition. Now, the LCs are long a net 11,028 dollar contracts, whereas the week before they owned only 2,811 net long contracts.
Still, the 11,028 net long contracts are less than half the 23,380 net longs they carried May 1, only two months ago. What’s going on here? Are the LCs confused? Do they see mixed signals? What will the report show next week?
Meanwhile, the LCs, “the largest traders of gold futures on the planet have been furiously reducing their collective net short exposure to gold,” says Gene Arensberg in his latest Got Gold Report, a bi-weekly feature published by resourceinvestor.com. As of June 26, the LCs held their smallest net short gold position since January 9. Long the dollar, reducing their new short exposure to gold? This isn’t making sense. What to do? As Richard Russell says, “It’s never easy.”
Actually, I think it is easy, as long as you do not try to catch short-term price swings. Trading gold and silver is difficult at best. Trading gold and silver is not for the average investor. Even the LCs, supposedly the most sophisticated and best informed speculators in the world, bumble from time to time. Remember, these guys held huge short positions in gold and silver when they ran to decades-high levels in May 2006. So, following the LCs is not a guarantee of being on the right side of the market.
Investors simply seeking protection against a declining dollar should buy gold and silver on dips and hold them. At CMIGS, we firmly believe that the dollar is in a long decline and that gold and silver are in secular bull markets. As a rule, gold and silver can be bought, with little downside risk, when they trade near their 200-day moving averages.
See the last paragraph in Arensberg’s Got Gold Report for his views on this precious metals bull market.