The Hedgers' Ledger — a note on the dollar

The commercials have shown their hand this week, and it points one way: away from the dollar.

The currencies — hedgers pressing long

In the currencies the hedgers are not trimming — they are pressing. The commercial book in sterling stands net long 123,431 contracts, up from 79,925 a week ago and a fresh three-year record; the New Zealand dollar (+57,522) and the Swiss franc (+56,495) lean the same way, both stretched further than they have run in years. These are the people who must handle the physical flows, and when they crowd to one side of the boat, an old tape-reader marks which side. Their lean is bullish the currencies — and a bid for the currencies is an offer in the dollar.

The metals — shorts covered into weakness

The metals tell the same story from the other end. In gold the commercial net short has been cut nearly in half — from 19,300 contracts to 9,336 — and in silver from better than 16,600 down to 13,722, the shorts bought back week after week even as price fell: gold off better than two hundred dollars, silver back from seventy. Men do not cover into a decline unless they expect the decline to end. The calendar spread confirms the firming — gold’s front-to-next discount narrowed from −30.5 to −29.0, silver’s from −0.53 to −0.45: still a carry, but a carry tightening, not loosening.

The read

Two markets, one message. The smart money is selling the dollar — long the foreign currencies, covering the metal shorts into weakness. I do not call the day or the hour; extremes can stretch, and the structure is firming, not yet inverted. But the line of least resistance, as the hedgers have drawn it, runs against the dollar. The sitting is the position.