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Precious Metals Specs Abandoned Ship


Would a breakout ignite the great inflation debate?


Several Professors have recently pointed out the possibility of a Yen rally versus the dollar, something that makes gold bugs often sit up and take notice. As Lance Lewis pointed out in Buzz & Banter, Yen and gold have enjoyed a cozy relationship this year.

Further supporting a potential new leg up in precious metals can be found in the positions of large speculators in gold and silver futures. While this data is getting somewhat stale (new data comes out this afternoon), what we can clearly see from the chart below is that trend-following speculators had greatly reduced their long positions in the past few weeks.

The chart below shows the percentage of long contracts held by large speculators in gold and silver. Large speculators are those that hold more than 200 contracts of gold futures or 150 contracts of silver futures as of the reporting date, and that don't identify themselves as using the futures markets to hedge their day-to-day business risk. Typically we're talking about trend-following Commodity Trading Advisors.

We can see from the chart that recently these large specs were holding a little more than 30% of long gold futures and under 30% of long silver futures – both about equal to multi-year lows. The previous two times both percentages had reached such low levels, the PHLX Gold / Silver Index (XAU) enjoyed a multi-month run higher. Perhaps the same will be in store this time around if the XAU can bust out of the triangle formation that it has been forming since the spring.

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No positions in stocks mentioned.

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