As The VIX Plunges To All-Time Lows, Speculators Abort Their Seasonal Gold And Silver Rush

A month ago, I wrote about the near seasonal pattern of speculators accumulating net long contracts in gold and silver from July troughs to October peaks. THIS year, the speculators started up on schedule but aborted the mission as net longs peaked well ahead of October.

Speculators ended their latest accumulation of net long gold contracts in early September

Speculators ended their latest accumulation of net long gold contracts at the same time as gold speculators in early September

Source: Oanda’s CFTC’s Commitments of Traders

So seasonal patterns work until they don’t (granted, the month is just beginning). In THIS case, the Federal Reserve’s tightening cycle is a key differentiator. Speculators ended their run-ups ahead of the Fed’s pronouncements on monetary policy on September 20th. The market generally interpreted the resulting policy statement and accompanying press conference as freshly hawkish. The change in sentiment was so sharp that expectations for a December rate hike rushed toward “near certainty.” Just 9 days earlier, the market practically dared the Fed to wait to raise rates until March or May of next year!

Thanks to the Federal Reserve, sentiment changed sharply on the timing for the next Fed rate hike. On the day before the jobs report for September, Fed Fun Futures are near certainty for a December rate hike.

Source: CME FedWatch

The market’s shift had a predictable impact on the price of SPDR Gold Shares (GLD) and iShares Silver Trust (SLV): down. What started as a small pullback from a strong run-up turned into a full rout. Both GLD and SLV once again broke down below key lines of support.

The SPDR Gold Shares (GLD) sold off for most of September and broke down below 50DMA support. For October, GLD confirmed the end of its breakout above its price from the election day close.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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