this long essay is well worth reading in its entirety. gene arensberg points out that the commitment of traders has turned bearish for the metals, which normally foretells a selloff, but this is the same thing that happened in 2005, when the shorts were overrun. on that occasion, jim puplava, david morgan and frank barbera all issued sell recommendations, and missed a huge move in the mining shares, so no one is perfect:

It really shouldn’t surprise us that we are seeing a big increase in the commercial net short positioning now, because gold is rapidly nearing an obvious technical resistance zone and the commercial traders nearly always load up heavily net short at such times. Forget the reasons why for a moment, both legitimate and otherwise, it’s just a fact of life in the gold biz that the commercials always seem to stand in the way of gold to the best of their ability.

It has been a while since we have been at this kind of condition on the gold market, so it is probably a good time to repeat that we expect there will be colossal commercial net short positioning when gold finally does go vertical or parabolic to the upside. Although it has nearly always been the case that the very high commercial net short positioning has proved to be more of a bearish signal than not (thus the caution flags), at some point in time that condition will instead become like 100-octane aviation fuel for the ultimate gold rally engine.

In other words, when the Big Breakout (the day when gold powers on up above and well into four digits) finally arrives -- just as the last big short covering breakout did in 2005 as gold finally advanced through the $450s -- it will almost certainly be while the COMEX commercials are very, very strongly net short just as they were then, in 2005, with over 212,000 contracts net short and the open interest at 370,844. The LCNS:TO read a staggering 57.4% of all open contracts just before gold powered on higher that October.

However, most of the time the commercial’s concentrated sales are enough to absorb the collective buying pressure, so when they become overwhelmingly net short it is definitely time to raise short-term trailing stops up to tighter settings. Like right now. Right or wrong, it is the correct play for short-term traders.

Gold short sellers throw down the gauntlet (again)

Some goodly portion of that commercial short selling is probably legitimate hedging. Hedging of offsetting positions owned or sold via derivatives in other markets. After all, the big short sellers are bullion banks and they and their clients hold or produce large physical positions. We know now, from the good work of really dedicated people that the very same bullion banks who hold the lion’s share of the commercial net short positioning in gold and silver are also direct agents of the U.S. central bank (the Federal Reserve) and the U.S. Treasury Department. We are talking about only three big U.S. banks at most, by the way, but they are the big dogs in the bullion kennel and one of them is uno perro grande for sure (JP Morgan Chase).

It is not hard to imagine that our Uncle Sam takes offense when the price of gold might look “too high,” which could threaten confidence in the under-backed paper dollar. Such “management” of a global market for gold metal might seem essential to people in the business of printing paper “money” and keeping citizen’s confidence in it. Everyone interested in that “management” should study the mountain of evidence complied at the Gold Anti-Trust Action Committee (GATA) website, which points to just that.

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