Ted Butler Quote of the Day 03-26-16

As I mentioned on Saturday, the key 50 day moving averages in gold and silver have been racing higher and combined with today’s sell-off, the distance to a downside penetration of the averages is narrower today than it has been in months. I don’t care a whit about these moving averages, but the technical funds seem to be governed by them and that’s why I mention them so frequently. Unless the technical funds decide suddenly to radically alter their basic methodology, the probabilities favor that they will be aggressive sellers as and when the moving averages get penetrated to the downside.

If that plays out, then we revert to ‘The Count’ mode in which we try to measure the maximum probable extent of technical fund selling and commercial buying. For a number of reasons, this promises to be a particularly tricky count, probably because it may be the last count (where have you heard that before?). I recognize that I am suggesting a short term down into a long term up, but you should not rely on that. Instead, look directly at the reason behind the suggestions, namely, that such a move would seem to benefit the bad guys.

It is possible that the flushing of the technical funds may have started on Wednesday, but that is less important than the potential extent of the flushing. We are, in many ways, at historical extremes in negative COT readings. In fact, Friday’s report is likely to set new extremes in the total commercial net short positions in both silver and gold for this year’s price advance. Because so many technical fund contracts were bought on the price move up, that suggests nearly as many could be sold on the way down. Complicating matters is the role that JPMorgan plays in all this. If JPM covers enough of its short positions quickly, silver prices could surge before a complete technical fund flushing. In any event, I would refine my guesses for this week’s increase in the total commercial net short headline number to between 10,000 to 15,000 contracts in gold and 5,000 to 7,000 contracts in COMEX silver futures.

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