Inflation, deflation, dollar collapse, dollar rally—as investors, we are sometimes faced with very difficult questions to answer. Right now, I am finding it tough to fully answer all of the questions in relation to these aforementioned two strikingly different scenarios. The great news is that sometimes there is another clue somewhere that makes worrying about such questions a topic for a later date. I’ll get right to it. The COT report for silver and especially gold issued this past Friday, November 7, 2008 was strikingly bullish. Large Speculators in gold, and here is where I differ with Alex Roslin, are supposed to be FADED. Consequently, when I saw their initiation of over 10,000 contracts of short gold positions, it quite frankly reminded me of August 2007. Now I am not saying we run back to the March highs, but I am saying we probably go up from here and I would be a buyer of any weakness that should come in this area below $775 gold.
China’s fiscal stimulus package was nice, but I suspect that we were destined to go higher today based on the COT, even in the absence of such news from the far East. Further, crude oil hit $60 a barrel which is where it finds longer term support. I was always optimistic this level would represent a good buy and last night’s actions have at least suggested that I might be right. I listen to these people on CNBC that don’t know anything about oil joining the bandwagon and screaming for 50 USD a barrel. Maybe they will be right, but I highly doubt it. Not yet anyway. Just as the morons jumped on board on the way up, here we find a new batch on the way down. Yes, I love being a contrarian. You just have to be patient. Anyone relatively unscathed at this point has been patient enough I believe to take a few chances here as it is the brightest spot with the least risk I have seen in some time. There will be a time to sell them again, but November has a nice knack of being a great month for metal’s investors. With paired down expectations, I am going to take on a touch more risk at opportune moments. I will save my greater questions for a tea time down the road, calling more friends in the process, whose opinions to this point, differ as much as the thoughts running through my own head.
No matter what happens I am sure of a few things in terms of trading. The first is that when things are sold out (like the COT report suggested), there is no one left to sell. Prices can no longer go down. Now, obviously gold and silver still have could be sellers even in the reality of the recent COT, but there are fewer of them and it will be harder to knock the price substantially lower. Second, it is so natural to dismiss things after they have gotten killed and assume that the market was obviously right. It is easy to argue that something might bounce a bit, but it’s really not going to go up much so why bother. But what always intrigues me is just how many times the market turned out to be dead wrong. Bounces are completely underestimated and then things strengthen at higher levels. Then, the choices, with the risk, will only grow more difficult to stomach. I try to recognize moments like these so I don’t feel like I have to buy them when the COT becomes less bullish, which it will at some point.
Looking for weakness.
John Cassimatis has been managing his own capital for 14 years in various markets.