Metals Have Lower To Go Despite The COT Report

So, I have not written any updates on Seeking Alpha for a few weeks due to personal reasons regarding my late wife. However, I wanted to provide a short update for those trading the metals, as I have been inundated with requests for an update.

Many precious metals market participants key in strongly on the Commitment of Traders report, or more commonly as the COT report. This is a report that presents the positioning of 3 main categories of traders: small speculators, large speculators, and commercial traders. The common perspective is that one wants to side with the commercial traders, as they are "in control" of the market.

However, over the years, I have continually cautioned readers to ignore discussions of manipulation or some "invisible hand" moving the market, despite what you are led to believe by many others. In fact, most use this reason as an excuse as to why they have been on the wrong side of the market.

As an example, in perusing some of the latest articles on the metals this past week, I came across a well-known blog which provides much "information" on the metals. The reason I have placed "information" in quotes is because I have never been able to see a reliable or tradable use for the overload of information that is presented on such blogs.

But, this blog writer is clearly in the majority camp which views the positioning of the commercial traders as the be-all-end-all perspective to take in the metals. The problem is that it is not clearly support by the historical facts. In fact, the commercial traders were overall very bullish in June right before the strong drop we experienced at that time.

But, this does not stop most from ignoring the realities of the metals' markets, and steadfastly holding to erroneous perspectives of the past. In fact, the commercials went into heavier long positions last week right before the recent decline, but the particular blog writer went so far as stating:

"Conclusions: commercials go net long again to the tune of 14,270 and that should have been bullish again but somehow the data must be corrupted."

I nearly fell out of my chair when I read his "conclusion." This is exactly that of which I have been speaking for years. The standard analyst in the metals over the last two years has claimed that the markets are going down because they have been manipulated by these same commercial traders. But, now that the markets have gone against these "manipulators," it must be that the data is corrupt!?

In all honesty, I can't even re-type his "conclusion" with a straight face. And, I will say this again for all who are willing to listen: If you do not open your eyes and your mind as to how metals really move, then you will likely be on the losing side of the trades more often than not, and making the same excuses as everyone else has over the last two years.

So, the question you need to ask yourself is if you would rather make money, or excuses?

In prior articles, I noted that I will be using GLD as the proxy for my metals analysis, as there was more clarity in that chart than the silver futures at the time. I also noted that if the market were to break out over the 131.50 level, you should consider cashing in the shorts we entered at the 138 region. Well, the market stopped within cents of our resistance level, and turned down quite nicely.

But, it still has not broken the important 119/120 region of support. This Fibonacci support region has proven to be a strong floor for the metals of late. But, as I have said before as well, if it should break hard, I do not see us stopping until at least the 112 region, and potentially taking us eventually down to the 98 region. In silver futures, my next target is the 16.50-17.75 region.

However, if GLD can give us a strong rally through the 126.50 region before breaking down below the 119 level, we may still see it head back to the 131.50 region again. So, we are at very important support right now.

Source: Metals Have Lower To Go Despite The COT Report

Disclosure: I am short GLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

Additional disclosure: But, I also own LEAPS in SLV to which I will be adding on the next decline.

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