Commitments Of Traders In Gold

Large Speculator Long Position Swells

Gold has been quite resilient of late, but the closing high last Tuesday was achieved by means of a fairly sizable addition to speculative net long positions in gold futures. A number of short and medium term peaks in gold have coincided with the large trader net long position reaching a level 2 standard deviations above the annual average. This has just happened again, so it seems possible that a correction will commence here.

Note however that there have also been several occasions in the past (during gold's bull market from 2000-2011) when a new interim high in the speculative net long position indicated a 'kick-off' to a much bigger rally. This is likely to happen again at some point – obviously, the market needs speculators to become gradually more bullish if it is to rise – but we cannot be sure that the time for this is already here, especially as the seasonally strong period is not yet upon us:

 

The net speculative long position (large traders) is currently 2 std. deviations above the one-year average – click to enlarge

It is noteworthy that the small trader net long position remains historically quite small, although it has also spiked higher last week. This position has definitely room to grow, but we suspect this will only happen once gold overcomes obvious resistance levels (such as $1330, and more importantly, $1,400).

August gold contract with Tuesday (day of the CoT report) indicated – click to enlarge.

Lastly, here is a long term chart of the CoT data, showing the years 1993-2013. As can be seen on this chart, the small trader position has been far larger in the past, as has the large trader position. The long term chart also illustrates that there are times when a surge in the net speculative position is not necessarily a bearish indicator.

However, the caveat to this is that at present, there is still a lot of lingering bearish sentiment and caution in the market, so traders are likely to have much tighter stops than was the case during the clearly bullish phases. Also, there remains a lot of technical resistance above current levels, which is unlikely to be overcome at the first try.

 

 

Historical gold CoTs 1993-2013. In the past, far higher net speculative long positions than today have been recorded – click to enlarge.

Conclusion:

A consolidation, resp. correction wouldn't surprise us at this juncture. Ideally any pullbacks in gold should hold at or above the $1,290 level on a closing basis to indicate that the short/medium term uptrend remains intact.

 

Charts by: Sentimentrader, Barcharts