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Buzz & Banter

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"...it's possible that this could occur within the context of a longer term bullish pattern." Absolutely. Particularly with the positioning of commercial traders, that can sometimes take a long time (like years) to work out. Just as one example, in 1993, commercials became quite net short (and small specs net long), gold declined for about a month, then shot higher by about $40/oz. over the course of two months. At that time, we saw commercials become even MORE net short before the move ultimately ended.

The trouble usually comes when we see quick spikes in positions, which we recently have for the commercials as they've been shorting the move higher off the mid-July lows in gold. Small specs have been buying (of course), though it's not quite yet at an extreme. I think there is still some more room here for extreme to become even more extreme, but I imagine a move to $370ish would be accompanied by a very negative setup in these futures positions.

As far as the Rydex and put/call indicators, they are much shorter-term, most effective out several weeks at most. Again, there's probably some more room here for them to become even more extreme, but they're already pretty tilted. When these indicators reach extremes, we usually see the underlying move immediately if it is going to move. So, if these signals prove good this time around, then I would expect gold to work lower beginning soon (like within the next week).

No positions in stocks mentioned.

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