After Last Week's Gold Drop, Speculative Traders Jump Back On Board This Week

May 28, 2017

Summary

  • Speculative gold longs rose and gold shorts covered by a large amount this week.
  • In silver, the action was different as we saw major short-covering but no increase in speculative silver longs.
  • Next week's big events are US jobs data related and investors can expect volatility in precious metals on Thursday and Friday.
  • At this point, our short-term position on precious metals remains at neutral as we see no clear reasons to buy or sell here.

The latest Commitment of Traders (COT) report showed that speculative gold traders last week abandoned short positions and jumped into long positions at the highest rate we have seen in 2017. In silver, the action was quite different as almost all the move was attributed to short-covering, with longs actually declining slightly on the week.

The major (scheduled) event for precious metals next week with be the Non-farm Payrolls report. Though, of course, the ADP and jobless claims report on Thursday will also probably move markets in anticipation of a June Fed rate hike - or if the reports are really poor, maybe that hike (or future expected hikes) may be postponed.

We will get more into some of these details, but before that let us give investors a quick overview into the COT report for those who are not familiar with it.

About The COT Report

The COT report is issued by the CFTC every Friday to provide market participants a breakdown of each Tuesday's open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. In plain English, this is a report that shows what positions major traders are taking in a number of financial and commodity markets.

Though there is never one report or tool that can give you certainty about where prices are headed in the future, the COT report does allow the small investors a way to see what larger traders are doing and to possibly position their positions accordingly. For example, if there is a large managed money short interest in gold, that is often an indicator that a rally may be coming because the market is overly pessimistic and saturated with shorts - so you may want to take a long position.

******** 

China is the world’s biggest gold producer with more than 355 tons annually. Australia is second.