Eric King: “Dan, what about the COT (Commitment of Traders Report)? I know there was some major movement there?”

Norcini: “That’s an interesting story, Eric. Watching what is going on there lately with the gold market, we’ve seen a very steady drawdown in the net-short position of the big commercials (the bullion banks). This week was rather fascinating because we are to a situation now where we are only about 5,000 contracts away from the commercial category being net-long this gold market.”

“Going back to 2006, when this data was first released on a disaggregated basis, this is the smallest net-short position that these guys (commercials) have ever had.

I cannot recall a time when they had this small of a net-short position. So there has been a huge change going on within the internal composition of the futures market there in New York when it comes to these commercials. They are moving more and more away from the short side of the market, and more toward the long side.

And it looks like the (small) speculators are continuing to lean (on the short side) against this thing (gold). That’s what brings us back to the price action, Eric. You can tell there has been heavy resistance in gold at around $1,340 to $1360. But we can tell who is selling it (paper gold): It’s not been the bullion banks. It’s been the hedge funds and other speculative groups.

The speculators are now in a ‘sell-the-rally’ mode in gold, while the bullion banks are in a ‘buy-the-dip’ mentality. That is what has changed in this market. I want to continue to monitor this, but based on this trend there is a (strong) possibility that if gold continues to stay weak, that you are going to see even more short covering on the part of these commercials -- to the point where they may be net-long for the first time that I have on record. That itself is quite a dramatic development.”