A quick review of the COT money flows reveals that connected interests may have had their feet placed on the fire this week in terms of trend control. Connected money, populated by the infamous bullion banks, has used futures and options, i.e. paper markets, to control gold rate of appreciate for years. A typical money flow setup, referred to as paper operations here, illustrates how commercial traders use short-side concentration to contain gold rallies during speculative upside bursts.
The sharp rise in the weighted stochastic for open interest, bounded between -100% and 100%, during illustrates the numerous upside bursts since 2001. See chart below
Gold London P.M Fixed (Gold) and the COT Futures and Options Open Interest Stochastic Weighted Average (WA):
In general, speculative surges, i.e. gold rallies, are met with short-side concentration by commercial traders to absorb the incoming demand. Sharp decline in the C-NR weighted stochastic (circled red) illustrates several of the previous concentrations. Last week’s unexpected increase in C-NR during an upside burst (circled green) could easily be construed as connected money getting their feet placed to the fire by the speculative and retail traders.
Gold London P.M Fixed and the Commercial (C) Less Nonreportables (NR) Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:
Are connected interests finally losing control of the trend? As always the most obvious interpretation doesn’t necessarily reflect reality in the money game. Perhaps, big money, rarely moving in plain sight, is finally adequately positioned to capitalized from a massive upside breakout?
Could the above control inversion and collapse in consumer expectation (confidence) be subtle warnings that the largely slow-and-steady, linear appreciation of gold is about to go parabolic? As always, only time can answer this question. This outcome, nevertheless, would most certainly be considered "shock and awe" even for hardened gold traders and investors.
The quiet scramble to accumulate key commodities and commodity related currencies into weakness raises the eyebrow of suspicion only higher.
COT Money Flow Table:
