In the latest gold and silver commitment of traders (COT) report (click here for an explanation of what this report involves), paper players made big strides in bringing the market back into balance — and setting the stage for an eventual rebound.
Speculators – who tend to be emotional and therefore wrong at the extremes – scaled their long positions way back, while the commercials – who time-and-again sucker the speculators into those emotional extremes and then fleece them – are now considerably less short. Here’s the raw data, courtesy of GoldSeek:
And here are the changes from the past two weeks in percentage terms.
When speculators are scaling back their longs and commercials are scaling back their shorts, that’s a sign that the market is moving towards balance. The longer these trends continue, the more likely it becomes that precious metals prices will rise in the ensuing six or so months.
That inflection point (when downtrend becomes uptrend) may still be a ways off, however. The players in this market had placed such extreme bets that even after two weeks of slimming they’re still positioned fairly aggressively. In other words, speculators are still pretty long, so if this indicator remains valid more price declines are in the cards.