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It's Time to Watch the Commercials

By Jeff Clark
Friday, February 23, 2007

The gold market is flying high, but it may need a parachute.
 
Gold is way up. Gold stocks are way up. Everything is bright and shiny in the metals market. But, before we go and get all bullish on gold stocks, take a look at this chart...
 
 
Gold and gold stocks have had a terrific week, but let’s keep the move in perspective. All that’s really happened in the precious-metals sector is that the stocks have moved back up to the top of their trading range.
 
When this happened last September, the gold bug community went nuts and cheered that we were on the way to new highs. Then gold stocks fell off a cliff.
 
When this happened last December, the gold bug community once again celebrated the inevitable move to new highs. And again, gold stocks declined to the lower end of the trading range.
 
And now, with gold stocks challenging the upper limit of the trading range, gold bugs are as giddy as five-year-olds on Christmas Eve.
 
A run at new highs may be in the cards. But, then again, maybe not.
 
Commercial short interest in gold is now at a level that typically occurs at short-term tops in the market.
 
According to a report from the Commodity Futures Trading Commission, the commercial net-short interest in gold futures and options is 177,000 contracts. That’s higher than the 172,000 net-short position we saw when the gold market peaked last May. And it’s higher than the 140,000 and 119,000 net-short positions that occurred during the September and December tops.
 
The CFTC report also shows that speculative traders are now net-long the highest position in gold futures and options contracts since last May.
 
So the commercial traders, who have the best track record for timing moves in the gold market, are aggressively short the metal. And the speculators, who have the worst track record for timing moves in the gold market, are aggressively long the metal.
 
Of course, it’s possible that the commercials are wrong, and the speculators are finally right. It’s also possible that the Oakland Raiders will win the Super Bowl next year.
 
But it’s a dangerous bet.
 
Best regards and good trading,
 
Jeff Clark




Market Notes
Gold and copper companies jump: Cumberland Resources, Southern Copper, Seabridge Gold, and Phelps Dodge all at 52-week highs.
 
Global ETFs hit new highs: Netherlands, Mexico, Brazil.
 
Earnings today: Eni, GulfMark Offshore, Lafarge.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%

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