Mining companies are commercials as are jewelry manufacturers. While mining companies naturally want the price of a commodity to go up, manufacturers want prices to go down. So the producer/merchant or commercials are actually net neutral. One side gains as prices go up, the other side gains as prices go down. The main function of the commercials is to take the other side of the trade when speculators enter the market. Remember, commodities are a zero-sum game. There are no naked short sellers. For every purchaser there is an equal and opposite seller.

This is extremely important to understand. Commercials rarely drive the market; speculators drive the price. Lots of people are constantly talking about how short the commercials are when in fact it is the speculators going long that is determining what markets do.

How do we know this just by looking at facts? Well, if the market is going up and commercials are getting shorter, they can't possibly be driving the market. After all, how do you make price go up by selling anything? You can't.

Let's look at what actually happens as money flows from weak hands into strong hands or from dumb money to the smart money. Gold hit about $1,047 per ounce in the middle of December 2015. Go back to what you learned when you started kindergarten. Who buys at lows? That's right, as prices go down the smart money buys, the dumb money sells. As prices go down the buyers are smarter and smarter, the sellers are dumber and dumber. If you walk into your Corvette dealer and he quotes you $70,000 for your dream car and you tell him, "No, I want to wait until prices go up before I buy," he will automatically know he is dealing with the dumb money. Smart money buys on sale, dumb money buys after prices go up. That's just as true of Corvettes as gold.

Examine what you have done as an investor at lows. Are you buying or selling? That will tell you if you are the smart money or the dumb money. In late December of 2015, the COTs were more favorable for gold and silver than they had been since 2001. The number of contracts was down and the weak hands were selling with both fists. The strong hands or smart money was buying.