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Friday, December 23, 2022 2:21:08 PM
Gold Upleg Still Young
By: Adam Hamilton | December 23, 2022
Gold has been powering higher on balance for a couple months now, surging to major breakouts. That upside momentum is improving sentiment, with traders growing more bullish on gold’s potential. That is well-placed, as this upleg remains young. Major gold uplegs are three-stage events, each having distinct drivers. The first and smallest stage isn’t even finished yet, which bodes very well for gold and its miners’ stocks.
The yellow metal’s latest upleg was stealthily born at panic-grade lows in late September. Over the next 2.8 months into this week, gold powered an impressive 12.1% higher! Yet that remains small and young by recent-upleg standards. Gold’s previous four uplegs in the last few years averaged way-bigger 28.8% gains over much-longer durations of 7.9 months. This current upleg is likely only getting started, with a lot to prove.
Major gold uplegs evolve through three stages of specific buying from particular traders. They are born when gold-futures speculators buy to cover short contracts, which is stage one. After gold falls to deep lows, some catalyst spooks these guys. So they rush to close out their risky hyper-leveraged downside bets, which is legally required. That buying soon becomes self-feeding, catapulting gold sharply higher.
That fuels enough gold upside momentum to increasingly attract back stage-two gold-futures long buying. Unlike short covering which is mandatory, long buying is voluntary. Speculators seeing gold surging want to pile on and chase its gains. Since their total gold-futures long contracts usually outnumber their short contracts by 2x to 3x, gold uplegs’ second stages are proportionally larger. Mounting gains ignite stage three.
That is driven by investors returning to gold with their vast pools of capital dwarfing gold-futures specs’. That makes gold uplegs’ third stages their biggest and longest by far, accounting for the lion’s share of their overall gains. Stage-three investment buying can last well over a year, compared to a couple months for stage-one gold-futures short covering and a half-year at best for stage-two gold-futures long buying!
Despite surging 12%+ in several months, today’s young gold upleg hasn’t even exhausted stage one yet. While this upleg is technically 2.8 months old, gold carved a deep double bottom in early November. So well over 19/20ths of its total gains accrued in just the 1.5 months since, not enough time for specs to run out of gold-futures shorts to cover and close. Stage-two and stage-three buying remain virtually nonexistent.
That all but guarantees this latest gold upleg has a long ways higher to run yet. Speculators’ gold-futures positioning data is published weekly in the famous Commitments of Traders reports. CoTs are current to Tuesday closes, but not released until late Fridays. So the latest-available CoT data for this essay was December 13th’s. This chart superimposes gold and its key technicals over specs’ total long and short contracts.
The sole reason gold blasted higher out of its recent deep lows was frenzied gold-futures short-covering buying. Gold originally bottomed in late September, at levels last seen after March 2020’s brutal pandemic-lockdown stock panic. Gold’s 2.5-year low was driven by total spec short contracts soaring to 185.3k, an extreme 3.8-year high! In early November near gold’s second bottom, they had surged back up to 180.1k.
But by that latest-reported CoT week current to December 13th, they had plunged to 123.2k contracts. So specs bought to cover a major 62.2k contracts, the equivalent to 193 metric tons of gold! That is a lot of buying in such a short span of time. That differs some from the 56.4k of short-covering buying in gold’s latest upleg noted in this chart. That’s simply due to the mismatched low weekly resolution of those CoT reports.
Gold bottomed at $1,623 on Monday September 26th. So technically the prior Tuesday’s CoT data was still current that day. All the gold-futures-contract changes in this chart are taken from the precise days of gold bottoming and topping, even if they don’t exactly match CoT troughs and peaks. The next CoT that was released for Tuesday September 27th better reflects specs’ gold-futures trading hammering gold that low...
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DiscoverGold
By: Adam Hamilton | December 23, 2022
Gold has been powering higher on balance for a couple months now, surging to major breakouts. That upside momentum is improving sentiment, with traders growing more bullish on gold’s potential. That is well-placed, as this upleg remains young. Major gold uplegs are three-stage events, each having distinct drivers. The first and smallest stage isn’t even finished yet, which bodes very well for gold and its miners’ stocks.
The yellow metal’s latest upleg was stealthily born at panic-grade lows in late September. Over the next 2.8 months into this week, gold powered an impressive 12.1% higher! Yet that remains small and young by recent-upleg standards. Gold’s previous four uplegs in the last few years averaged way-bigger 28.8% gains over much-longer durations of 7.9 months. This current upleg is likely only getting started, with a lot to prove.
Major gold uplegs evolve through three stages of specific buying from particular traders. They are born when gold-futures speculators buy to cover short contracts, which is stage one. After gold falls to deep lows, some catalyst spooks these guys. So they rush to close out their risky hyper-leveraged downside bets, which is legally required. That buying soon becomes self-feeding, catapulting gold sharply higher.
That fuels enough gold upside momentum to increasingly attract back stage-two gold-futures long buying. Unlike short covering which is mandatory, long buying is voluntary. Speculators seeing gold surging want to pile on and chase its gains. Since their total gold-futures long contracts usually outnumber their short contracts by 2x to 3x, gold uplegs’ second stages are proportionally larger. Mounting gains ignite stage three.
That is driven by investors returning to gold with their vast pools of capital dwarfing gold-futures specs’. That makes gold uplegs’ third stages their biggest and longest by far, accounting for the lion’s share of their overall gains. Stage-three investment buying can last well over a year, compared to a couple months for stage-one gold-futures short covering and a half-year at best for stage-two gold-futures long buying!
Despite surging 12%+ in several months, today’s young gold upleg hasn’t even exhausted stage one yet. While this upleg is technically 2.8 months old, gold carved a deep double bottom in early November. So well over 19/20ths of its total gains accrued in just the 1.5 months since, not enough time for specs to run out of gold-futures shorts to cover and close. Stage-two and stage-three buying remain virtually nonexistent.
That all but guarantees this latest gold upleg has a long ways higher to run yet. Speculators’ gold-futures positioning data is published weekly in the famous Commitments of Traders reports. CoTs are current to Tuesday closes, but not released until late Fridays. So the latest-available CoT data for this essay was December 13th’s. This chart superimposes gold and its key technicals over specs’ total long and short contracts.
The sole reason gold blasted higher out of its recent deep lows was frenzied gold-futures short-covering buying. Gold originally bottomed in late September, at levels last seen after March 2020’s brutal pandemic-lockdown stock panic. Gold’s 2.5-year low was driven by total spec short contracts soaring to 185.3k, an extreme 3.8-year high! In early November near gold’s second bottom, they had surged back up to 180.1k.
But by that latest-reported CoT week current to December 13th, they had plunged to 123.2k contracts. So specs bought to cover a major 62.2k contracts, the equivalent to 193 metric tons of gold! That is a lot of buying in such a short span of time. That differs some from the 56.4k of short-covering buying in gold’s latest upleg noted in this chart. That’s simply due to the mismatched low weekly resolution of those CoT reports.
Gold bottomed at $1,623 on Monday September 26th. So technically the prior Tuesday’s CoT data was still current that day. All the gold-futures-contract changes in this chart are taken from the precise days of gold bottoming and topping, even if they don’t exactly match CoT troughs and peaks. The next CoT that was released for Tuesday September 27th better reflects specs’ gold-futures trading hammering gold that low...
Read Full Story »»»
DiscoverGold
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