Gold's Blistering Gain This Week Rewarded Contrarian Traders…But Can The Rally Continue?

January 15, 2017

Summary

Over the past week speculative longs build positions while shorts covered for the first time in eight weeks.

Despite the move in gold, short positions remain at high levels while many speculative longs remain on the sidelines.

The gold ETFs that have historically bought as the gold price has risen have not significantly added to physical positions during the past rally.

Speculative silver positions remain much higher on a historic basis, thus we believe gold makes a better investment here than silver from a contrarian point of view.

Since there are plenty more momentum shorts left to cover while longs remain on the sidelines, we wouldn't be surprised to see gold's rally continue.

The latest Commitment of Traders (COT) report showed gold traders establishing new long positions, while speculative gold shorts covered the most positions since early November. Gold speculators increased gold long positions for the first week in eight weeks, but their net gold position remains fairly low so there is still a good chance of gold rallying further.

As for gold producers and merchants (i.e. non-speculators), there was little change in positions last week as all the activity was on the speculative side. Which strengthens the opinion that we are seeing right now is a short-covering rally with other entities reluctant to take a stand bullishly or bearishly on the gold price.

One more thing to note is that despite the move in the gold price we have seen very little in terms of physical metal being added back into the gold ETFs.

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.

In every cubic mile of sea water there is 25 tons of gold

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