The Gold Spec Washout Begins

By Craig Hemke

As we type this on Tuesday the 15th, the price of COMEX Digital Gold is down nearly 2% on the day. This places it under $1,300 per ounce and below its all-important 200-day moving average.

Over the last two weeks, we've attempted to summarize the risk of this event through weekly columns that are distributed here by Sprott Money. If you haven't been following along, you should be sure to review these two posts, as they pretty well encapsulate the goings on today:

o https://www.sprottmoney.com/Blog/gold-going-on-sal...

o https://www.sprottmoney.com/Blog/the-next-rally-in...

The charts below were included in those posts, and they are the best ones to review for perspective:

And so what we have here is another test of fortitude.

Look, the only reason there is a TFMetalsReport and we've been at this now for nearly eight years is that we understand the forces at work in these "markets". Knowing the manipulation and the manipulators allows us insight and perspective that few others possess.

So, to that end, we KNOW that an opportunity is soon to be presented to us, whether we are aggressive traders or passive stackers. This is the ONLY way to manage and address the ongoing price manipulation and suppression. All other reactions fear, anger, despair, etc. are useless.

Below is another chart, this one from late February. Back then, we asked if you were mentally prepared for this possible fakeout. In fact, in my files, it's actually titled "fakeoutbowl"!

Regarding what lies ahead, as The Banks rout the Specs once again, we ask again today if you are mentally prepared for such a "fakeout"? While we expect the damage to be limited to just $1,270-1,280, what if we see $1,235 instead, in a sharp break designed to drive the Gold Specs as net short as the Silver Specs?

Either way whether price turns at $1,275 or $1,235 are you prepared?

In this case, "preparation" DOES NOT mean that you have to buy some calls, some miners or some additional physical. That's NOT what this means at all.

Instead, are you prepared mentally to see yourself through this current storm? Do you understand the processes unfolding before your eyes and why/how it is happening? If not, then part of the blame is on me, as it is my job to make all of this clear.

To that end, let's try again.

Here's a brief and dramatically oversimplified explanation of the process...

In their role as "market maker", the Banks issue the contracts to the Specs. In COMEX gold, this is almost always a Spec taking the long side and a Bank taking the short side. From time to time, sentiment crashes, and the Specs rush to the exits. This selling of Spec longs allows The Banks to take the other side and buy back their shorts. This is what you are seeing today. At the end of the process, The Specs have generally lost, The Banks have generally won and the whole game resets to be played again.

By the time this current process ends (at most likely near $1,275 but possibly $1,235), the Large Specs will be very nearly fully "washed out", with a net long position of 60,000 contracts or less.

If price indeed "fakes out" everyone by crashing to $1,235, the Large Specs may actually be briefly seen as neutral or even net short, similar to the current CoT structure in COMEX silver. And at that point, the stage would be set for a MASSIVE rally, and this is where fortitude becomes your greatest ally.

What is now very likely coming is a low similar to the bear market end of December 2015. Back then everyone and I mean EVERYONE was forecasting sub-$1,000 COMEX gold as The Fed embarked on their tightening program.

However, at TFMR we held firm that the lows were in with a full CoT wash that saw The Large Specs net long just 9,750 contracts and the "Commercials" net short an all-time record low of just 2,911 contracts. We were proven correct, and in the first six months of 2016, price soared nearly 30%!

Here's a random post from late December 2015 that demonstrates the point: https://www.tfmetalsreport.com/blog/7347/gradual-r...

So please hang in there for the next few days. Again, the emotions of fear/anger/despair accomplish nothing. Instead, education and understanding accomplish peace of mind... and the foresight to recognize opportunity if so inclined.

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities. Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.You may copy, link to or quote from the above for your use only, provided that proper attribution to the author and source is given and you do not modify the content."