Sentiment Indicators Support End to Gold Correction
As discussed previously on these pages, the COMEX Commitments of Traders (COTs) published weekly by the CME is one of the best indicators for the western speculative sentiment that tends to drive gold prices in the short term.
Sentiment Indicators Support End to Gold Correction
As discussed previously on these pages, the COMEX Commitments of Traders (COTs) published weekly by the CME is one of the best indicators for the western speculative sentiment that tends to drive gold prices in the short term.
The most recent data as of last Tuesday's close (November 10, 2015) shows that Large Speculators in aggregate reduced their net long positions on COMEX in the previous week by a very large 41% or nearly 48,000 contracts. In the past two weeks, the reduction in net Large Speculator longs is more than 89,000 contracts....a record for a two week period. More than half of this total reduction was achieved by liquidating longs, as expected. This is the sort of action we were looking for as a prelude to a bottom because too many speculative long positions had been built up in October in expectation of gold surmounting its 200dma, which did not happen. This set up now looks bullish. Given that gold has declined into a new 52-week low, the positioning is likely more bullish now.
In the most recent week, shorting predominated as hedge funds jumped onto the trend and pressed their bets. The Commercials used this shorting to reduce their net short position by 57% in just one week to less than 72,000 contracts as of last Tuesday.
In the Disaggregated COT Report, the changes in the positions of the Managed Money category (mostly hedge funds) were even more impressive. Over the last two weeks, they sold nearly 56,000 long contracts and increased their short position by more than 41,000 contracts, for an enormous total two-week swing of more than 97,000 contracts. Remaining Managed Money longs are now under 94,000 contracts, the lowest since 2008 (and $800 gold). This looks like gold is washed out to the downside, or nearly so.
The Open Interest, after deducting the Spreading contracts which are really two way bets, is now down to less than 371,000. Does it need to go lower? Maybe not much.
As for other gold sentiment indicators, they are down at levels that typically support a market turn. The Hulbert Report survey of gold timing newsletters (HGNSI) was unchanged last Friday at -30%, indicating a preponderance of shorts. MarketVane's bullish consensus was unchanged Friday at 31%, and the Daily Sentiment Index rose four points to 21%.
The decline in gold over the past several weeks has been brutal, recently down eight days straight and 12 of 13. These long streaks - either higher or lower - often end in reversals.