Today the man who provides macro research and commentary to many of the largest financial institutions and top hedge funds around the world sent KWN 5 absolutely stunning gold and silver charts illustrating the shocking global situation in both metals. Eric Pomboy, who is founder of Meridian Macro Research, and whose sister Stephanie Pomboy appears in Barrons, also provided incredible commentary to go along with the 5 stunning gold and silver charts, as well as what all of this means going forward for the gold and silver markets.
“The Net Commercial Gold Position has moved even closer to positive territory (reduction of 20% for week ending 6/25). The nearly $560/oz drop since the announcement of QE3 in mid-Sept. 2012 has resulted in the most bullish Commercial reading since August 2002 when Gold was $310/oz.
Given the enormous volume for just Wednesday-Friday (total of 873,719 contracts…the largest 3-day volume since the mid-April smash), I would not be surprised to see the net short position cut nearly in half by next week, with a net long reading not far off.
The next chart offers a different look at the COT data as we wanted to get a sense of Gold’s performance relative to the very bullish Net Commercial position. Since October 2012, the Commercials have pared their net short position by 87%, yet the overdone selling in Gold has resulted in a huge disconnect when compared to prior cycles.
Friday was a strong day for the Gold miners. Spot Gold was up $34, and the GDX (+7.5% on the day) traded a record 75.3 million shares…more than 1 million shares above the April 15 (previous) record when Spot Gold dropped $135/oz (GDX -10% on the day). The (14 day) Relative Strength Index for GDX surged +11.1 points on Friday to 39.14…above the 30 ‘oversold’ level….
“The RSI has been below 30 three times this year (all since late February). The last time we saw 3 consecutive oversold readings in just a 4 month span was when Gold made its bottom in 2008. In sum, it would seem the Gold miners may finally be back on firm ground.
Looking at the Dow/Gold ratio, in the ’74-’76 period the Dow rose +73% while gold retreated -40%. Gold has retreated -36% from its Sept. 2011 high (-38% if using Friday’s intra-day low), while the Dow has risen +127% from its 2009 lows (up +40% since Sept. 2011). In our estimation, the ratio reversal should not be far off, if not already here.
Our last chart shows value of US Gold Reserves is at historic lows relative to Monetary Base, below 2001 levels when Gold was in the mid-$200’s. Gold would have to be $3,850 today for Reserve Value just to match 31% of Monetary Base seen in 2008 as the recession took hold.
Gold has endured quite a drubbing, and the naysayers are piling on. The bear case: Gold pays you nothing and its 15 minutes of fame have come and gone. That’s the extent of the forensic analysis. There is no mention that the global economy is in continued crisis and that easing policies are set to ramp up, not down.