First, last week's panic sellers were nothing more than the "stooges" in the game. Commercial traders have been aggressively increasing their net long position (long less short) since early August 2011. Net long as a percentage of open interest has increased from -40% as of 8/2 to -26% as of 9/20. Last week's sharp decline most certainly allowed them to increase their net long position (reduce their shorts) under the cover of panic with a smile on their face.
Gold London P.M Fixed and the Commercial Traders COT Futures and Options Net Long As A % of Open Interest
Second, while the paper operation flushed weak hands and punished the long-term holders, it has also provided an opportunity to quietly accumulate an extremely bullish and rare money flow setup. The configuration of BULL, BULL, BULL in the chart below says it all. Even before last week's vicious paper attack, gold was displaying statistically concentrated money flows across multiple time frames. The panic decline most certainly thinned the herd (retail money in particular) and concentrated this setup even further.
Leverage Money Flow Table:
Technically Observations
(1) GLD closed at 159.90.
(2) Support levels to watch 164.91, 159.96, 153.85
(3) The spike in volume through 8/8 gap represents a break of support with force. This does not necessary imply continuation to the downside. Price, like a cork in water, can pop above and below this zone for days/weeks. Volume must contract during a test of this gap to confirm it as support.
(4) Leverage money flows (see above), the tail that wags the dog for gold, will help time the turn.
Gold ETF (GLD)
