By Brady Willett:
Gold broke above $1300 an ounce on Friday and silver ended at a new 30-year high. Whether these gains are sustainable over the near term is impossible to comment on. What can be said is that gold is likely to remain in a long-term uptrend so long as the central banks continue to try and manipulate currency and asset prices, and/or the outlook for fiscal deficits remains worrisome. In other words, gold and silver today serve as both a hedge against the downfall of fiat money and the threat of major sovereign default(s).
The Demand Drivers
There used to be a time when the COT data was important; when the investor looking to buy or sell gold could study the data to glean excellent points of entry/exit. To say that the COT statistics have become completely irrelevant may be an overstatement. However, the recent data is definitely of little utility to the average investor. In the case of last week (as of September 21), commercial short interest as a percentage of open interest declined for the third week in a row and net small spec long interest barely moved higher even as the price of gold launched by more than $25 an ounce. If the small specs are not chasing rallies and the commercials are not looking to short the heck out of any large move higher, why bother to even look at the COT data? Quite frankly, the expectation of a commercial triggered wipeout in the price of gold (and silver for that matter) has all but vanished. This is not to say that forces will not pile on to try and trigger stops and/or manipulate prices when a pause in buying arrives, only that it is impossible to forecast such an event beforehand.....read on