Last week's rally in the gold market emboldened the large speculators to increase their positions to nearly 5:1 on the long side by adding 120k new long positions over the last three weeks. This is the most bullish position the speculators have attained since March of 2018. Gold made the high for 2018 at $1,370 (GCJ18) in January and then failed miserably after a second speculative charge to $1,350 (GCM18) in April. Long-term back-adjusted charts show considerable resistance in the $1,410 to $1,425 area.
The gold miners have taken a different approach to this rally. They've locked in future deliveries at a pace not seen since July of 2016 when the August contract peaked at $1,377.
This is my standard Commitment of Traders chart. I want to know three things. First, "What are the players' net positions?" How long or short are they? Second, "Is this a new net position high or low over the last year?" Finally, "How does their current position compare to their historical positions?"
The first subgraph plots the net commercial and speculative positions. You can see that the speculators are buying as prices rise while the gold miners' selling is forcing the net commercial position deeper into negative territory.
The COT Ratio on the bottom tells us that the large specs are long 3.9 contracts for every contract they're short. Currently, this has swelled to nearly 5:1.
The red and blue dots represent rolling 52-week new lows and highs respectively. The current red dots indicate that this is the most negative the commercial traders' net position has been for the last 52 weeks.
The red and blue painted bars tell us how anxious the commercial traders are to get their trades executed at the current prices by comparing the last week's net change to the standard deviation of the average net change. Commercial trader selling pressure is more than two standard deviations beyond their average position.
We use these tools to generate nightly and weekly trading signals in the commodity futures. The weekly signals' time frame also makes them suitable for traders of commodity-based ETFs. We don't expect the recent gold rally to last much longer, and we've just recently issued a sell signal in the shorter time frame daily signals.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in AUGUST GOLD FUTURES over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.