Gold, Silver Spike Foretold by Indicators
HOUSTON -- It’s not like the signs were not there to warn us of the large move higher for gold and silver today.
In addition to the CFTC Commitments of Traders (COT) signaling hidden strength for gold and silver (as we detailed in a Memorial Day video), lately mining shares have been showing a quiet outperformance as shown by the chart just below. The chart shows the AMEX Gold Bugs Index or HUI (right axis) with gold (orange, left axis). It does not show the very large spike higher today for gold (yet) because gold is only reported after the close on the chart. What is important is the outperformance of the miners leading up to today.
We believe it is interesting that mining shares seemed to have “seen” today’s breakaway, short covering rally for gold and silver in advance. We also believe that at least some of the very high short positions for gold and silver futures held by traders classed by the CFTC as Managed Money (as a hedge as we reported in the video) are almost certainly being covered in today’s remarkable price action for the metals.
We can now say, with little reservation, that the large reductions in net short positioning by the combined commercial traders (as covered in the video) were not only "justified," they were indeed an excellent leading signal.
Ignore the signals from the largest, best funded and presumably the best informed commercial traders of gold and silver at one's peril.
As we prepare to hit the "send" button for this brief message, the HUI is up 6.5% on the day. Smaller miners, represented by the Market Vectors Junior Gold Miners Index or GDXJ are "answering," up 6.9%.
On May 18 we noted the apparent change underway (mining shares switching from underperformance to outperformance) in a post titled "Help is On The Way."
With GLD up 3.5%, SLV up 3% and the miners up double or more percentage wise, apparently that help we saw then has arrived.
That is all for now, but there is more to come.