Shift in Speculative Gold Positioning Suggests Transition to Bull Market
The positioning of traders on COMEX appears to be shifting in a manner that supports a significant change in sentiment and price direction. The Speculators are moving from net short to net long, which was the key factor driving price this month.
Shift in Speculative Gold Positioning Suggests Transition to Bull Market
The positioning of traders on COMEX appears to be shifting in a manner that supports a significant change in sentiment and price direction. The Speculators are moving from net short to net long, which was the key factor driving price this month. The Managed Money category of Large Speculators, representing the Hedge Funds, held 103,272 short contracts just a month ago on December 29, 2015 when they were net short an unprecedented 27,201 contracts. On January 26, 2016, they were still short 78,942 contracts and net long just 16,803 contracts. This is the sort of swing that usually marks a bottom. By way of comparison, on September 20, 2011, with gold at its all-time high, the Managed Money crowd had a short position of just 8,293 contracts and were net long an extraordinary 151,425 contracts.
On January 26, 2016, COMEX Commercials had grown their short position to 126,870 contracts, increasing their net short position (by just 16%) to 59,833 contracts. By way of comparison, when the gold price turned down from its all-time high in September, 2011, the Commercials were short 363,131 contracts and held a net short position of 210,468.
We believe the gold market is now transitioning to a bull market which has lots of room to run in terms of COMEX positioning-the Large Speculators have very small long positions and the Commercials are still not nearly as short as usual. Speculative buying is what drives the gold price. Let's see if we now get the follow-through that confirms a bull market. It is noteworthy that, last week, the gold price held up against a rally in both equities and the dollar.
Something else to keep in mind: pro traders tell us the over-the-counter (OTC) market is at least 10 times larger than COMEX. The OTC positioning is unknown but likely to be similar in structure to COMEX. That means there is probably much more short covering to come.