June 25, 2004
Precious Metals Rally Ahead of Alan and Iraq

COT commercial short interest has declined for 11-weeks in a row and is currently at its lowest level since April 29, 2003 (Excel). Despite the fact that commercial short interest still trumps commercial long interest nearly 2-1, this trend is a positive for the price of gold. Quite frankly, any time gold rallies and the commercials are not adding to their short positions this is a positive development.*

Also encouraging is the fact that speculative long interest has stopped its free fall: the speculation being that you have to shake out the ‘weak hands’ before any sustainable upward move in price can occur.


* Needless to say, the COT data - released today but only current as of June 22 – could log a dramatic change next week, or after this weeks fire works are taken into account.

If the dollar don’t drop the shorts could quickly make $400 an ounce a memory

I still think that precious metals are worth owning for the long-term. To reiterate recent sentiments, “Owning/accumulating more gold/silver at current prices is one of the safest ways to hedge against the volatile US dollar.” (May 12)  Nevertheless, the time to safely add to your precious metals positions has quickly come and gone. Next week is all about uncertainty, and ‘uncertainty’ is the oxymoron of ‘investing’.

Think about it this way: gold is up 8.4% off of its May lows, silver is up by 12.2%, and the US dollar index – which is down 3.87% since May 13 – would only have to rally by 4.02% to reach its yearly high. In other words, if you have owned gold and silver in recent weeks you are ahead of the game. Congratulations!

Think about another way: unless the dollar continues its descent the next up leg in the precious metals bull could be delayed.  Moreover, you should be a little frightened by the fact that 11-weeks ago the commercial shorts were carrying more than double the amount of short contracts they current own.  In short, the commercials have reloaded, and will likely attack if the dollar doesn’t drop...

The US Fed will raise interest rates next week and something is going to happen in Iraq. Gold reportedly gained ground this week because of geopolitical/interest rate fears.  Will it take a new high in gold before the commercials start to stockpile short positions, or is $400 an ounce going to soon be under attack?