The Commitment of Traders report (COT) comes out every Friday. The data is as of Tuesday so there is a lag. The COT data provides important data about the construct of the market. It tells important information such as who is holding long positions (commercials or speculators) and the total open interest.
The commercials are the traders who are the producers and/or users of the commodity. They tend to be more conservative in their approach and will hold positions far longer than your average speculator. As such, it is generally more bullish when commercials are heavily long and not the speculators. The larger the long positions of speculators, the more “weak hands” are in the market.
Even though Gold and Silver have had very strong runs, we don’t see a negative setup in the COT. At one time, the commercial short position in Gold was 326K contracts. As of last Tuesday, it was 288K contracts. That means that since the May top, Gold has gained about $100 and speculative long positions have declined by 12%.
The Silver COT is even more bullish. At the start of October, commercial traders were short roughly 68K contracts. As of last Tuesday, they were short ~49K contracts. That is about a 27% decline in speculative long positions. Open interest is only marginally higher than the last two peeks but also well below the peak in 2008.
The COT is just one of several things we use to gauge the sentiment in the precious metals market. Sentiment indicators, along with technical analysis is a powerful combination that helps us assess the probabilities and manage risk in this burgeoning bull market. If you like this kind of analysis, then consider a free 14-day trial to our premium service.
Jordan Roy-Byrne, CMT