Google “yield curve inversion” and you’ll see that analysts have been waiting for this indicator to send its big signal for years. It’s getting close, so expect a flood of breathless/ominous headlines when it finally happens.

The precious metals market has a similarly rare and portentous indicator: “net short speculators”. But today this one actually happened. In the latest commitment of traders (COT) report, both silver and gold speculators finally took on more short positions than long. This is rare because speculators are almost always net long – that is, betting that precious metals will go up rather than down. And it matters because speculators are usually wrong at big turning points. In other words, when they’re convinced they’re right, they’re usually wrong. And this week they became just about as certain as they’ve ever been that precious metals are going to tank.

Here’s gold…

… and silver:

Here’s the same stat for gold in graphical form, with the gray bars representing speculator positions. What used to be a big long bet has evaporated: 

A similar apparent capitulation happened this week in the precious metals mining stocks, with some huge drops in securities that were already way down. The GDX gold mining stock ETF is pretty much representative: 

This kind of quick, hard move is often what it takes to set the table for better times. Nothing is guaranteed in life, but paper market speculators abandoning hope while physical demand from China, India, and Russia remains strong does seem to create a low-risk, high-potential-return entry point for both bullion and mining stocks. 

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