"Although gold is clearly nearing another buy target (April gold closed today at $415.90 and gold's 200 DMA is around $412), it is only a buy if the bull market is set to continue. Will the gold bull market continue? I think it will, regardless of whether or not the IMF sells gold or how many dollar pleasing speeches Greenspan gives. However, I don't see any near-term reason (beyond COT) to speculate that gold's 200 DMA is rock bottom resistance." Feb 4, 2005

As it would turn out, gold did bottom around its 200 DMA, and it has rallied strongly ever since. And while technical players may have been responsible for gold bottoming, the bounce is now being embellished by favorable COT configurations. To be sure, the commercial shorts left the market (i.e. locked in profits) aggressively in the latest week, and are now smugly awaiting a higher price level to attack. The last time commercials were this neutral on gold the price of gold was at $375 an ounce (May 2004).

The above chart is almost identical to the February 4 COT 'forecast'. In fact, last Tuesday spot gold was at almost the exact same price level the Feb 4 chart forecasted it would be at: The only difference between the two charts is that the commercials have reduced their net short exposure faster than expected.

Although the COT indicators will eventually fail (i.e. either the commercials will default or make so much money beating gold down that they will have little choice but to go net long again) they remain an important indicator today. If next week goes according to plan (COT stats as of Feb 15 to be release this Friday) the picture should remain one of commercials waiting for higher prices.

A technical bounce and bullish COT statistics will not be enough to catapult gold to its 2004 highs. Rather, what is required to send gold to new highs is a resumption of the U.S. dollar bear and/or a financial crisis. With SOx 404 nearing, the U.S. housing/hedge fund bubble still brewing, and the yield curve flattening as long-term interest rates stay eerily stable, there are plenty of reasons to believe that some type of exogenous shock will transpire to benefit the price of gold. As for the U.S. dollar, speculations are running wild that the rally is over.

"Speculators have had a net-long bet on the dollar against the euro only twice before in the past three years...On each prior occasion, the dollar fell about three-quarters of a cent on the trading days following the report's release." Bloomberg

In short, the COT numbers paint an entirely different picture than they did a week ago, and unless central bankers suddenly opt to stop the printing presses there is no reason to believe that $400 an ounce will be retest anytime soon. The gold bull market - like any bull market - is marked by a series of lower lows and higher highs. Baring the expected unexpected*, the price of gold may have already reached its lowest low in 2005.

* The expected unexpected: "...the suppression and manipulation of the gold price is worse now in my opinion than it's ever been." Embry