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The current drop in Gold Prices – so far, at least – barely shows against other sell-offs to date…

WHATEVER REASON you cite for this week’s swoon in Gold Prices to $1160 per ounce and lower, ’tis but a scratch so far, says Adrian Ash at BullionVault.

The current options contract on Gold Futures expired Wednesday, guaranteeing volatility. Because as longer-term speculators moved to rollover their position in the derivatives market, banks taking the other side of the trade were only too happy to oblige.

More broadly, active traders would always expect to see a seasonal lull – if not drop – in Gold Prices between July and Sept. India’s gold-hungry millions don’t buy over the summer, but wait until autumn’s post-harvest Diwali festival instead. And after the huge gains spurred by the Greek crisis of April and May, a pullback was long overdue.

That’s not to say the Gold Price bull market starting a decade ago hasn’t just met it’s end. Some in the mainstream investment media certainly want to see it that way, even if – like this guy at the Sydney Morning Herald – they’re driven more by resentment of gold’s recent gains than analysis of its future.

But either way, and like Monty Python’s Black Knight says, the gold market has had far worse cuts than this…

Losing a little over 9% from last month’s top to date, the gold price in Dollars would have to reach $1073 an ounce before matching the 15% drops of Dec ‘09-Jan ‘10 and Feb-Apr ‘09.

Gold would need to hit $948 an ounce before matching the 25% drop of May-Jun ‘06. And it would have to reach $834 before matching the 33% Mar-Sept. loss of 2008.

This current swoon is also a good way from setting new records for pace, too. Top to bottom, it’s nothing – so far – next to the 16% week-on-week drops of June 2006 and Sept. 2008.

Small comfort to investors or traders picking last week’s dip as a bargain, perhaps. But so far, it’s only a scratch.

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Source:'Tis But a Scratch!

The "large commercials" are reducing their short position so fast, they’ll soon be bullish…!

CLEARLY, and as reported in the Commodities Futures Trading Commission’s weekly commitments of traders report, the largest "industry insiders" commercial traders are reducing their collective net-short positioning at an accelerated pace, writes Gene Arensberg from Atlanta, Georgia in his Got Gold Report.

Not so clear are the reasons why.

Here’s the nominal Large Commercial Net Short graph (bullish minus bearish contracts) for US Gold Futures…

Over the past three reporting weeks – and as the Gold Price corrected $48.53 or 3.9%, down from $1240.50 to $1191.97 an ounce – the biggest "hedgers" and short sellers of gold have reduced their net short positioning by a remarkable 74,292 Comex 100-ounce contracts. That is a reduction in LCNS of 25.6% – a brisk pace.

Over that three-reporting week period, and for each $1 lower in Spot Gold, the "Big Sellers" have covered or offset 1,531 contracts of their net short positioning. At just that pace, with no further acceleration factored in, the LCs would become net long gold in $1050 neighborhood.

Since gold slipped from $1240, in short, the Large Commercials have reduced their net short bets by the equivalent of 7.4 million ounces – about 231 metric tonnes. We can point to only three periods of faster reduction in the LCNS over a three-week period in the last 7 years of data.

• August 5-19, 2008 (as the world fell into the 2008 crash) with gold then in the $870s. The LCNS plunged from 219,671 to 130,154 contracts, a reduction of 89,517 contracts or 40.8%;
• July 5-19, 2005 with gold then in the $420s. The LCNS declined from 165,574 to 84,048 contracts, a drop of 81,526 contracts or 49.2%;
• May 3-17, 2005 with gold then in the $420s. The LCNS fell from 169,289 to 79,681 contracts, a 3-week drop of 89,608 contracts or 53%.

We should also compare the nominal gold LCNS to the total open interest. That gives us a better idea of the relative positioning of the largest hedgers and short sellers – the Producer/Merchants and the Swap Dealers combined into a single category – on the Comex Gold Futures exchange.

And when compared to all contracts open, the relative combined commercial net short positioning (LCNS:TO – the most important graph we track here at Got Gold) fell sharply from 43.7% to 38.6% of all contracts open.

Here’s the LCNS:TO graph for Gold Futures…

Notice, once again, that the LCNS dropped a good deal more than the open interest (LCNS down 32,684; Open Interest down 8,605).

The drop in LCNS outpaced the drop in open interest at a roughly 4:1 pace in the week ending last Tuesday. And when we see that, it suggests that the largest "paper gold" sellers are aggressively closing out their "hedging".

As gold sold down from the $1260s to the $1170s, please note that the LCNS:TO has fallen to its low of the year, and this is the first time the LCNS:TO has fallen below 39% since December 9, 2008 – back amid the post-Lehmans panic.

The fact that the LCNS:TO has fallen so far on what is essentially only a modest, roughly 7% pullback for Gold Prices suggests a major shift is underway in the futures market. We view the current LCNS:TO of 38.6% as considerably more bullish than bearish. The largest commercial traders, as a group, seem to be rushing to cover or offset their net short positioning as gold consolidates in the $1170-1210 range.

That doesn’t necessarily mean that gold won’t continue to sell off even more. It can and it might. But these date certainly do mean that the largest "hedgers" and short sellers of paper gold have closed out a substantial amount of their collective net short positioning on what amounts to a net $50 drop in the Gold Price, as measured on Commitment of Traders reporting Tuesdays.

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Source:Gold "Insiders" Slam-Shut Their Shorts

SAN FRANCISCO (MarketWatch) — Gold futures ended marginally lower Monday, unable to drum up much fresh-buying interest after a jump in new-home sales and enthusiasm for second-quarter earnings. Gold for August delivery declined $4.70, or 0.4%, to $1,183.10 an ounce on the Comex division of the New York Mercantile Exchange. The nearly 24% increase in new-home sales helped copper, heavily used in …

Source:Gold ends lower, copper rises to two-month high

Gold futures for August delivery ended lower on Friday after stress tests showed that seven European banks were not strong enough to withstand another recession. The test showed that banks in Germany and Greece were weak spots and needed restructuring.

Source:Gold to get support at $1,175 an ounce

SAN FRANCISCO (MarketWatch) — Gold futures settled 0.3% higher on Thursday as bargain hunters stepped in and commodities in general rallied on enthusiasm about U.S. corporate earnings. Gold for August delivery added $3.80 to settle at $1,195.60 an ounce, closing under the key $1,200 mark for the fifth consecutive session. Other metals outperformed gold, with copper rising 7 cents, or 2.3%, to …

Source:Gold settles modestly higher; copper up 2.3%