After a brutal few weeks in precious metals, you’d expect trend-following speculators to be heading for the exits. And the most recent gold and silver futures action — aka the commitment of traders (COT) report — shows exactly that. Which is good news.
In gold, speculators – who tend to be wrong at big turning points — cut their net long position by 8%, while commercial traders – who tend to be right at turns – cut their net short positions by about 9%. These are big moves for a single week and bring both groups closer to levels at which, historically, precious metals start to rise.
Here’s the same data shown graphically. When the two sets of bars converge on the center line, that’s historically a bullish signal. One more week at the current pace and we’re there.
In silver, same thing with even bigger percentages: Speculators cut their net long position by 15% and commercials cut their net short position by 9% (though the silver COT report has been tarnished a bit by the fact that it went hyper-bullish in early 2018 but nothing happened).
The past week was generally down for precious metals, so it’s likely that the next report will show current favorable gold and silver futures market trends continuing. Combine this with precious metals’ seasonality – demand rises towards year-end as Asians start loading up for harvest and wedding seasons – and there’s a good chance that the dreary recent action will soon be replaced by something a lot more fun.
Meanwhile, even with precious metals languishing, some of the better junior mining stocks have started to move:
This is due in part to their own operational success but also to the fact that big miners can’t find enough new reserves to replace what they’re using up and are now aggressively looking to buy out the best of the rest. See commodities analyst Marin Katusa’s take on this process here, and note his last line: “This makes junior gold miners with high-grade projects that much more valuable.”
4 thoughts on “Gold And Silver Futures Action Turning Positive”
John – I hear that in Sep the first petro yuan contract will expire which may spur massive gold buying and help boost the price. What’s your take on that?
Sam, that would be great but these derivatives are uncharted territory so we won’t know the answer until we get there. Here’s hoping though!
I read here that in gold, speculators cut their longs.
Then JR says in silver “same thing” – speculators cut their shorts.
Am I misreading or is JR miss-typing?
John, arrggg, good catch. I had it backwards. It’s fixed now, thanks.