ATLANTA (ResourceInvestor.com) -- It’s been a satisfying three weeks since the last Got Gold Report suggested backing up the truck to add badly beaten up small gold, silver and uranium mining and exploration companies. For those who missed that report, the nutshell version was that when the financial genius stock-picking gurus were abandoning their former “best buys” at what are ridiculously low prices; when these popular stock salesmen were in essence finally turning fearful and about as bearish as they ever do, it was time for all of us very patient, vulture-like, longer-term oriented and contrarian-minded traders to back up the truck for our highly liquidity-dependent and very harshly mistreated inexpensive mining favorites.

Since that May 5 report, of the 82 small mining and exploration companies this report follows daily on charts, 53 or 65% advanced (some strongly), 23 or 28% declined and 6 or 7% remained unchanged over the 3-week period. That means that advancers outnumbered decliners by more than a 2:1 ratio for the period.

That’s an impressive showing made all the more interesting by a notable increase in volume on many of the individual issues as well as a dramatic increase in the number of small resource companies reporting buys of their own stock by company insiders. (Companies followed closely by this report, not necessarily the entire sector.)

The slightly more bullish action of the small miners over the past three weeks shows up in this chart of the Canadian CDNX (the S&P TSX Canadian Venture Exchange). Of course it didn’t hurt that both gold and silver rose modestly over the period, but if that was the only factor at play then so many of these small resource companies would not be at such drastically low price levels to begin with. See additional commentary about that on the chart itself and a bit more below in the Bottom Line section.

COMEX Commercials’ Net Short Positions Spike Higher for Gold but Not Silver

As chronicled below in the Gold COT Changes and Silver COT sections over the past week the largest of the largest futures traders took on new gold short positions aggressively as gold popped a little over $52 the ounce, but they really didn’t do so for silver.

Speaking of silver, longtime readers and new friends alike might find this week’s Silver Market Commentary interesting. It’s just below the Silver COT section this time and looks at the continued positive money flow into the U.S. silver exchange traded fund. Among other things mentioned, SLV has added about 1,299 tonnes of new silver to its silver holdings this year and has yet to show ANY significant negative money flow in 2008.

Bottom Line

When real interest rates remain negative, real inflation is escalating and the very inflationary effects of much higher oil prices have yet to really be felt; when gold production for the major producers is falling (that’s right, falling), central bankers are selling less than they are allowed to under the Washington Agreement II; when investors world-wide are trying to preserve their purchasing power in an era of continued reckless, competitive government fiat currency debasement; when investment demand for both gold and silver are strongly on the rise, it is a time for buying gold and silver, not for selling it. This is a gold and silver bull market and it won’t end abruptly anytime soon in this report’s opinion.

As of today nothing trumps gold and silver for places to store wealth (especially silver during its usual harsh corrections). This report continues to recommend buying/adding on significant to strong dips if possible, but add a reasonable percentage of gold and silver soon to one’s investment portfolio if you haven’t already done so (preferably into significant to strong pullbacks).

Additionally, with oil having eclipsed the $130 mark, and perversely, many of the small speculative but promising uranium miners and explorers having been taken out behind the barn and shot over the past nine months, that is another contrarian stock vulture opportunity well underway to be exploited by the more nimble resource investors.

Although certainly not robust yet, interest in our favourite junior and micro-cap resource companies does finally appear to be on the rise, as expected, following a brutally harsh vacuum of liquidity away from the sector since last July. If that action continues and if some of the more strongly mistreated, but still promising issues catch a bit more of a bid over the next few weeks, we’ll be able to say that a little more liquidity and confidence is finally returning to the small miners and explorers.

If the indications this report follows closely are correct, the exodus of liquidity away from the small miners and explorers peaked sometime between January and early May, also as expected.

While it is probably much too soon to expect a dramatic flood of liquidity back into the small guys right away, it is certainly not too soon to expect them to continue firming through the “normally lacklustre summer months.” By this time next year it would not be surprising at all to see that they had strongly outperformed both the two most popular precious metals and their larger, major exchange traded gold and silver producing cousins.

Over the next few weeks the author plans to continue to add favourite small miners and explorers into obvious lack-of-liquidity-driven downside overreactions opportunistically for longer-term speculation.

On to some of the indicators.

Gold COT Changes. In the Tuesday 5/20 commitments of traders report (COT) for gold metal the COMEX large commercials (LCs) collective combined net short positions (LCNS) mushroomed a whopping 37,584 contracts or 21.16% from 177,597 to 215,181 contracts net short Tuesday to Tuesday as gold jumped $52.27 or 6.03% from $867.00 to $919.27.

Since Tuesday gold tested as high as $935.80 Thursday, before pre-Memorial Day (in the U.S.) profit taking set in knocking just the tip top off back to a Friday last trade of $924.86 on the cash market. For the calendar week gold turned in a net $22.77 gain or about 3.4% on the cash market.

As of Tuesday’s COT reporting cutoff, COMEX gold open interest rose a moderate 13,448 to 453,084 contracts open, each covering the future delivery of 100 ounces of gold metal.

Long-term June 2009 and beyond COMEX forwards surprisingly FELL 4,718 to 47,642 lots open, or a very low 10.52% of total open contracts.

Gold bears, having just gotten gut punched with a $52 jump higher for the metal will probably take some comfort that the largest of the largest futures traders INCREASED their collective net short positioning by 2.79 times the number of overall new contracts on the largest, most liquid gold futures bourse in the world, the COMEX. Indeed, as the number of total open contracts increased a one-week total of 13,448 the collective combined net short positions of traders classed by the CFTC as commercial increased by 37,584 lots.

For each $1.00 of gold price increase, the commercials added 719 contracts to their net short positioning. As gold metal increased about 6.03% the commercials were willing to increase their net short positioning by 21.16%, enough contracts to cover just under 117 metric tonnes of gold metal. That means that the COMEX commercials had to be aggressively willing to accept the short side of new trades.

We have to conclude that right or wrong the commercials clearly felt that this latest surge higher for gold is not going much higher, was unjustified and will soon be reversed if their net short positioning is any guide. Are they right?

Not incidentally, the last time that the commercials increased their collective net short positioning by more than 20% in a single COT reporting week was the reporting week of September 11, 2007 when the LCNS jumped 29.41%, having increased 25.78% the week prior. Gold metal had just cleared the $700 mark at the time and was inching very close to its May 2006 previous peak near $730. Clearly the commercials believed strongly then, in September, that gold would soon reverse course and head back on down. It didn’t. By March of this year gold had eclipsed the $1,000 level before it finally ran out of steam.

Although such a large increase in the net short positioning of commercial traders is ominous and disquieting for those long the metal, the above is just one example of several over the past five years where an overly large increase in the net short positioning of COMEX commercials produced the opposite of what one might expect.