COT report and gold
The CFTC (Commodity Futures Trading Commission) releases its COT (Commitment of Traders) report every Friday. It provides a breakdown of open interest in the futures market for each week ending on Tuesday.
Positioning of speculators and commercials
Large speculators have made a record shift in their positioning for the last two weeks. In the latest week, they reduced their net longs by 66,000 contracts after a reduction of ~51,000 contracts the previous week. This group of traders is usually considered trend-followers. The extreme positing by this group may provide a clue to a changing trend.
In contrast to speculators, commercial traders and bullion banks have reduced their net short positions in gold. This group of traders is usually referred to as smart money. When this category hits the bottom in short interest, prices usually rise. It has been hailed as an indicator that gold prices could have an advantage as we enter 2018.
Is the bottom in gold near?
Another indicator that’s usually seen as a turning point for gold prices is the net long position of speculators. Usually, when the net long position of large speculators falls to around 100,000 contracts, the metal usually bottoms out. Currently, the figure is close to 100,000 contracts, which might mean that either we’ve already seen a bottom or are close to a bottom in gold prices.
A bottom in gold prices would mean a rally, which would be positive for equities such as Gold Fields (GFI), B2Gold (BTG), Harmony Gold (HMY), and Alamos Gold (AGI). GFI and BTG make up 1.8% and 1.4%, respectively, of the VanEck Vectors Gold Miners ETF (GDX). HMY and AGI currently aren’t part of GDX’s holdings.