This Is How Gold Traders Are Positioning Themselves For What Could Be The Most Volatile Week Of The Year

Summary

• Strangely, speculative shorts covered a much greater number of contracts than longs bought during the COT week.
• That tells us that traders are not picking sides for this election but are instead paring down risk.
• We believe investors should do the same and keep core positions but pare down risk in preparation for US elections.
• That also means there is a lot of shorts and longs on the sidelines waiting to get in after elections.
• Which suggests that gold will move significantly up or down depending on who wins the US election - a very binary result.

Friday's Commitment of Traders (NYSE:COT) report is going to be significant because it will be the last one issued before US elections - and it gives us some insight on how traders are trading in preparation for arguably the most important election for the next four years. Trump or Clinton will finally be settled, and gold has certainly been moving up and down with the polls.

Over the past week we saw a significant move in both gold and trader positions, as the yellow metal regained the psychological $1300 level and speculative traders increased long positions and bought back short positions. In fact, last week was unusual because we saw more shorts cover than longs start new positions - which definitely suggests risk-paring sentiment rather than speculative "animal spirits" in the gold market.

We will give our view and will get a little 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.