Alasdair Macleod Asks: How Oversold Can Gold Get?

Alasdair MacleodGold is now extremely oversold, with emotional opinion in paper markets unanimously bearish. Traders tell us the 200-day moving average is well and truly broken and the next support level is $1260. However, when gold broke down through the $1280 level Thursday it rallied sharply to test the $1300 level in a one-day spike reversal.

By Alasdair Macleod, GoldMoney:

Market chat and technical analysis are one thing; more important are the motives behind the commentary, revealed by a dispassionate look at Comex figures. And here we see that Producers and Merchants short positions have fallen to an eight-year low at 73,033 contracts, against a long term average of 186,400. This is the primary source of liquidity for all futures markets, and it has simply dried up.

Swap dealers have also cut their shorts dramatically, reducing their net position by 26,582 contracts, and the eight largest traders between them have a level book. In short, the bears have to persuade us to sell, or they will be in trouble.

The figures quoted above are as of 15th April. Since then the gold price confirms this analysis by refusing to go lower and stay there (hence yesterday’s spike reversal), while open interest has risen from the post-Lehman crisis low on 4 April. This is shown in the chart below.


The rise in open interest tells us that the shorts, mostly hedge funds, are opening new positions and failing to drive prices lower, so the market is being set up for another bear squeeze. By way of confirmation the gold forward rate in London remains negative up to three months out, indicating an extreme shortage of physical metal at these prices.

In these markets sentiment can change very rapidly. We read this week that the US is on the brink of another housing crisis because sales (demand) have stalled. Last weekend the Ukrainian protagonists met in Geneva and agreed to “de-escalate” the situation. By Monday the situation was escalating again.

Oh, and the best contrary indicator of the lot was also on Monday, when according to the Wall Street Journal’s Market Watch blog, for the first time ever all 72 economists polled by the National Association for Business Economics expect the US economy to grow this year. It is usually right to bet against such unanimity in economists.

This week


US: Pending Home Sales.


Eurozone: M3 Money Supply, Business Climate Index, Consumer Sentiment, Economic Sentiment.
UK: GDP (first est.), Index of Services.
US: S&P Case-Shiller Home Price Index, Consumer Confidence, FOMC Meeting (to Wednesday).
Japan: Industrial Production.


Japan: Construction Orders, Housing Starts, BoJ Monetary Policy Meeting, BoJ MPC Overnight Rate.
Eurozone: Flash HICP.
US: ADP Employment Survey, Core PCE Price Index, Employment Index, GDP Annualised, GDP Price Index, Chicago PMI, FOMC Fed Funds Rate.


Japan: Vehicle Sales, Real Household Spending, Unemployment.
UK: Nationwide House Prices, BoE Mortgage Approvals, Net Consumer Credit, Secured Lending, M4 Money Supply.
US: Initial Claims, Core PCE Proce Index, Personal income, Personal Spending, Manufacturing PMI, Construction Spending, ISM Manufacturing.


Eurozone: Manufacturing PMI, Unemployment.
US: Non-Farm Payrolls, Private Payrolls, Unemployment, Factory Orders.


  1. A one-month chart.
    What’s the predicting track record of short term divergience on this?

  2. When does someone distinguish the paper charade from real metal?  It appears never!

  3. All 72 ecomomistd may be right if they lower the bar enough

  4. Since the globalist puppeteers control both the paper price of the metals and the mainstream media who demonizes same as they read from the “script”, well hell, there’s no end to how oversold it can get. It’s all good, I would rather stock up while silver is under $20 and let others have to buy it at the premium it will be once TSHTF and everybody comes to realize it’s still valuable. Most of the rest of the world certainly understands the value of the metals. Eventually, the slower western folk will open their eyes and stop listening to the failing mainstream media.

  5. PMs are cheap!  This week may provide the best buying opportunity you will have for some time. Everything is lining up perfectly.
    May Day is very important to communists and their ilk around the world.  Something will no doubt occur in the Ukraine, if it turns ugly then PMs might catch a bid, therefore watch for a nice waterfall, probably Wednesday night/Thursday morning.
    April used to be a very good month for gold and silver, the last few years the drive-by’s kept it from happening.
    This year has been no different, except the attacks are a bit less effective.  This should be a dramatic week, one way or the other.
    Buy a helmet and hunker down.

  6. Well the GOFO rates are negative right now and when it’s negative then as Turd says, There’s no Gold and the price rises. Hasn’t failed yet. Prices are going up this week. Lol Keep Stacking


  7. In Euro terms, I saw the lowestlver intraday silver since July 2010. I have been stacking physical for way shorter than that.
    GSR was close to the high since that time also.
    So what did I do? I bought 95oz before the absolute dip, and 81oz at the Doc just after, both about 1% above the deepest point, but still well down into that deep V. Even if we should go lower I won’t whine. I just prefer phyz over paper, and I can’t complain at these prices. Average ticked down a bit more. Especially since I sold some collectible ounces at slightly higher spot and bought back these. 

  8. @XC Skater you said the magic words, I just prefer phyz over paper, I feel the same way, every spare fiat dollar goes into metals, hell I’ve lost count of my Stack, hope I can find it all. LMAO Keep Stacking

  9. So who’s left to run the shorts absent Producers, Merchants and Swap Dealers? The Exchange Stabilization Fund’s HFT robots (aka ‘Hedge Fund’ sock puppets). This crap is all government orchestrated, but now it seems the bank contingency of ‘The Gang’ is peeling off in financial cowardice. The signs of that were evident when JP Morgue and G-Sucks surprisingly started building long gold and silver positions, even if only in paper claim form.

    Remember, in 18 USC Sec. 8 … no coins, or metal of ANY description, are listed as ‘Securities of the United States’ … nor I venture would they be found among government ‘securities’ of any OTHER country either. At Law, fictions can only deal in and with other fictions.

    Also, again, I’m seeing amazingly volatile paper trading this morning (2:40am EDT). There’s a war going on in the paper metals market and this kind of ‘tectonic oscillation’ always precedes SOMETHING cracking wide open or blasting into the sky.

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