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What Investors Should Know about Gold's Key Drivers

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Part 10
What Investors Should Know about Gold's Key Drivers PART 10 OF 12

How Are Traders Positioned on Gold?

The COT report

The CFTC (Commodity Futures Trading Commission) reports the position for major players in the futures market through a report known as the COT (Commitment of Traders). This report specifies the positioning of various players in the market. It is released every Friday and shows the open interest recorded on the previous Tuesday.

How Are Traders Positioned on Gold?

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The disaggregated report is more detailed and lists the following main categories of traders:

  • Producers usually use gold futures markets to hedge the risk associated with the physical commodity.
  • Swap dealers use the futures market to hedge the risk associated with swap transactions, which involves commodities.
  • Money managers are engaged in managing and conducting futures trading on behalf of their clients.
  • Other reportables are those that don’t fit in the above categories.

Analyzing the COT report

The COT report shows the direction of the trades happening in a particular commodity. The most important thing to note in the COT report is the players’ actual positions and changes from the previous report.

Money managers’ positions

The latest COT report was released on November 3, 2017, and showed the positions for the week ended October 31, 2017. It showed that money managers have cut their long positions for the seventh straight week. Money managers reduced their gross long positions by 10,049 contracts to 182,652 contracts. Overall, it seems that the interest in gold is falling.

Many market participants are attributing this to other attractive options such as bitcoin and the risk-on environment. The stock markets are hitting all-time highs, which is detrimental to the case for investing in gold. The correction in the equity markets, as many market participants think is imminent, could boost gold prices. The strength in the US dollar, as we saw previously, is also hitting gold prices negatively.

Notably, a negative sentiment would be detrimental for gold prices (GLD) and gold equities like Newmont Mining (NEM), Franco-Nevada (FNV), Goldcorp (GG), and Royal Gold (RGLD).

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