On Guard Against The Banks – Craig Hemke

September 12, 2017

Following the events of yesterday, it seems wise
this morning to take an in-depth look at the charts in order to discern
what moves The Banks may take next in the hope of stemming this rally
and reversing the trends.

Let’s start with Comex Digital Gold. It has been
in an UPtrend since July 10 and this rally has carried it $150 or about
12.5%. In doing so, The Commercials on the CoT have increased their NET
short position by 182,000 contracts and, specifically, the 24 Banks of
the Bank Participation Report have
doubled their NET short position, going from 104,748 contracts NET short in July to 213,746 NET short last week.

This places the CoT in its “worst” position
since last September and this BPR reveals the largest NET short position
on record. Therefore, you KNOW that The Banks will do just about
anything at this point to reverse the trend and begin flushing The Specs
back out of paper gold. Though they are clearly capable of pulling this
off, it may take them a while to do it. Why, you ask?

For CDG, it’s all about the moving averages. We
noted early last week that CDG’s 50-day had bullishly crossed UP and
through both its 10-day and 200-day MAs. This is a very bullish trend
indicator and, most importantly, it sets the Spec HFTs into a “buy the
dip mode”. You can see this playing out already when you look at the
daily chart.

Also last week, we began to discuss the
significance of the $1331 level as support in any pullback. This was the
level of resistance and then support in late August so we
hoped/expected that same action on any pullback. And look what has
happened thus far this week! Even though the all-important USDJPY is up
another 50 pips today and pressing against 110, Comex gold is hanging
firm at….$1332! For us, this is clear evidence of the HFTs buying the
dip.

And here’s the big challenge for The Banks.
Check where you can find those MAs. The closest is the 50-day but it’s
all the way down near $1280. The Banks are not going to be able to flip
the Spec HFTs until, at a minimum, the 50-day is violated to the
downside. So, this is why we can say “it may take a while” for The Banks
to really generate the downside momentum that will flush The Specs in
the same old, wash-and-rinse pattern.

This doesn’t mean that a massive raid can’t
happen. What is DOES mean, though, is that aggressive traders should
have plenty of warning and can use this time to hedge and prepare.
Again, use the chart below as a guide and watch that rising 50-day
closely.

Now let’s look at Comex Digital Silver. It, too, is holding the support
area that we identified last week. This support is quite clearly the
most recent highs near $17.90 last June.

Like CDG, Comex Silver has seen its own rally
over the past two months, moving up a full $2 or about 13%. Also like
CDG, the silver “Commercials” have fought this rally by increasing their
NET short position from 21,900 contracts on July 18 to 79,700 contracts
last Tuesday. Therefore, you know that JPM et al would just LOVE to
smash price and force a Spec exit but they, too, are going to need some
downward momentum to get the ball rolling.

As you can see below, the MAs for Comex silver
are not in the same bullish configuration as Comex gold. Therefore, the
very clear target for The Banks is the 200-day moving average found
today near $17.28. They’ll hope to break this level on a closing basis
sometime soon.

And the reason for trying to break the 200-day is clear. On the chart below, you can see four instances in just the past twelve months
where price was broken at the 200-day and a steep, Spec-rinsing decline
followed. This is easy money for the colluding Bank trading desks so
you can be certain that they are salivating at the opportunity to pull
this same trick again!

OK, as I close, I’ve still got $1331 and $17.92 so our initial support levels are holding. Let’s hope this continues and a rebound follows.

However, you must be aware that The Banks are still in charge and nothing in their behavior suggests that they are “on the run” or “losing control”. Therefore, plan and trade accordingly.


Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities. Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.


The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

Source: Sprott Money