Bullion Upside Reversal Confirmed By Mining Shares
Eric Dubin: Bullion was mauled in the overnight session, when thin volume facilitates cartel price management. As can be seen with the overnight session’s sharp decline, this was not the typical stair-step downward move that would be considered normal profit taking following last week’s big gains. In fact, the regular session on Monday saw normal profit taking during London and New York trading sessions. Who in their right mind would try to exit large positions for profit taking during the most illiquid period during Tuesday’s overnight session? It should also be noted: the argument can be made that coming into Monday during the access hours there was a small cartel raid that set the stage; who needs “nudge teams” when they already exist on Wall Street?
Conventional thinkers outside of the reality-based community might scoff at this analysis. So be it. The bottom-line is that Tuesday’s overnight session witnessed a raid. It’s very visible in the chart.
Today’s upside reversal speaks to the underlying strength of this new bull cycle. The character of the bullion market has changed, readily apparent to anyone with a lick of “mercantile sense” as James Sinclair observes. It also comes a day before the release of minutes from the FOMC, and futures contract settlement later this month. Precious metals markets typically come under pressure against that sort of backdrop.
Hedge funds are incrementally increasing their long exposure. Some of these very same hedge funds were playing the short side more aggressively only three weeks ago. In addition, the hot money crowd is demonstrably not interested in laying on big, new short positions; many are looking for entry points to get long. This shift in the speculator community is contributing to fast upside reversals like we see in this morning’s trade.
Meanwhile, fundamentals for the physical market are strengthening. The seasonally strong period for Asian purchases has begun. We also have the bullion banks apparently net long both gold and silver. The talking heads on CNBC might not be able to see that the bullion markets have turned, but you can and that’s why you’re reading this (and the brainwashing box is ideally turned off!).
Mining Shares Confirming Bullion Price Action
Monday’s standard profit taking was telegraphed to some extent by Friday’s tepid trading across mining shares. Mining shares have a tendency of revealing short-term inflection points when it comes to the speculator community. The shares also can reveal shifts in the aggregate view of longer-term oriented investors.