Ann: Continued spectacular intersections support Deflector growth, page-53

Those living their life by COT need to be careful in a bull market. For many months Hamilton has been writing about the high commercial short position and relatively poor performance of gold stocks as prelude to a substantial correction in the gold price. But it hasn't happened and now gold stocks (GDX, HUI) could be breaking out of a 7 year basing pattern.

There is futures buying (speculators) and physical buying (investors). Keith Weiner of Monetary Metals attempts to determine which group is driving price by measuring spread between spot and futures prices and calculating a "fundamental price" and comparing it to the market price (chart below). In the last 3 months, it has been physical buyers (almost certainly institutional because retail markets remain weak) who have been dominant drivers, not leveraged futures players.

In my opinion, we are in the early stealth phase of a bull market, which explains weak retail demand for physical and relatively poor performance of gold stocks by historical standards. However, all that is going to change because we don't have inflation, the oil price is low, miner input and capex costs are contained (unlike the 2000's period) and gold producers like SLR will be generating crazy cash flows, as Bob Hoye has been telling us for years and years.