Ted Butler: Tech Funds In Bullish Positioning (Au, Ag)

"As I mentioned in last week's review, there had been a build up in the gross short position of the technical funds in gold, as indicated in the long form disaggregated futures --only COT report. I gave the numbers for silver but not for gold, so let me do so now. This is the category of trader that the commercials lured onto the short side by the process of engineering lower successive prices. This "slicing of the salami" was the prime inducement for getting the tech funds to go short and the commercials pulled it off this time brilliantly. From the time of the first drop in gold below $1,600 (early May) to this week's COT, the short side of the managed money category increased by more than 30,000 contracts, from under 10,000 contracts (COT of May 1) to almost 41,000 contracts as of the Tuesday cut-off. I would calculate that the average pr ice at which the tech funds sold short these 30,000 contracts to be around $1,575."

"As I tried to explain, this type of pure tech fund short seller is always a bullish factor in the market because once they are done selling, you know they will buy back as prices rise (as opposed to the commercials who rarely, if ever, buy back shorts on higher prices). You don't know when or where these tech funds shorts will buy, but you know they will buy at some point. And they have a tendency to go through the door and buy all at once, if important moving average signals are flashed. Those signals were flashed on Friday and it was tech fund buying that was solely responsible for the explosion in gold prices. The only thing I don't know is if all 30,000 tech fund short contracts were bought back or is there some number remaining to be bought (the more remaining to be covered, the better). Of course, this tech fund short-covering is separate from the buying of long contracts by other tech funds. As always, this is what moves prices."

"If the tech funds bought back these 30,000 gold short contracts at prices where the majority of volume was transacted on Friday, I would calculate that the tech funds lost (or will lose) up to $150 million. Not bad for one day's pay for the commercials who made or improved their bottom lines by that same amount, even if it needs to be split 30 or 40 ways. And this is just a partial take for the commercials on a single trade that occurred within a month's period of time. It was a pretty big one, but just a single ringing of the commercials' collusive cash register. This is a cash machine that has been rung hundreds of times over the years, to the great shame of the regulators."