The 2 essential things for investors to remove here are that (1) speculators are now net-short silver and (2) Producers/Commercials are not getting the slack substantially.
In concerns to the very first point, traditionally when we struck a net-short position in silver we have actually seen a bounce-back in the silver rate and hence have actually made it a great time for financiers to purchase– a bullish signal.
When it comes to the 2nd point, Producers/Commercials are not picking up the slack in terms of their positioning in silver, which recommends to us they are not as optimistic on the demand side for silver as they have remained in the past. That is not unexpected for us as we still have our concerns about bullion financiers cutting back their silver purchases over the previous year to much lower levels. We do not think the commercial side can offset this cut in need, so this is a bearish indication.
About the COT Report
The COT report is provided by the CFTC every Friday, to provide market individuals a breakdown of each Tuesdays open interest for markets in which 20 or more traders hold positions equivalent 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 variety of financial and product markets.
Thus, our view on silver is a bit muddled as the clear bearishness of speculators is a contrarian-positive, however the lack of purchasing by Commercials is bearish. It may be a great time to initiate silver positions, however not yet to really go all-in with silver.
The Chinese New Year.
This Friday starts Chinas New Year celebration where the Shanghai Gold Exchange will be closed for a week as Chinese traders and financiers travel and celebrate their brand-new year. While gold doesnt tend to have a clear instructions throughout the week, it does tend to be more unpredictable than usual in our experience– which makes a lot of sense as theres less trading volume in Asia.
Virtually speaking, it is an ideal time for short-term traders to push markets in the instructions they wish as it takes less cash to make bigger relocations in these quieter markets. Therefore, we are a bit concerned specifically about the gold cost because it is toward the greater end of its historical range in regards to the speculative net-long position– it would be an ideal time for the speculative longs to be tested.
We are back after a hiatus of few months, we had to get a few personal things in order, however we want to be regular once again with our COT reports. Let us get back into examining what short-term valuable metals traders are doing with their COT positions!
The latest Commitment of Traders (COT) report revealed a second straight weekly decline as speculative longs continued to trim positions, though after a seven-week stretch of consecutive speculative positional gains this isnt especially surprising. Speculative shorts also closed out positions, so we truly had little in the method of conviction from shorts on the decline in gold through the COT week. We would remind investors that gold rose after the reports Tuesday close, which recommends that the existing speculative gold position downplays how long the market really is.
The significant calendar event that gold investors need to focus on next week is the Chinese New Year, which began on Friday (2/16/2018). The huge takeaway here is that there will be much less activity from China as the country celebrates its new year, which in our experience produces far more volatile trading as less money is required to move the gold market up or down.
We will get more into a few of these information but prior to that let us provide financiers a quick introduction into the COT report for those who are not familiar with it.
Here is an article about what Gold investors should expect Heading into the Chinese New Year. , if you want to check out the original content check out the link at the bottom of this post.
Last week, speculative gold positions decreased for the 2nd straight week as both longs and shorts cut positions.
Regardless of the drop, speculative gold positions stay fairly high up on a 10-year historical basis.
Silver speculators cut silver positions when again to a net-short position, which is a bullish contrarian signal.
The 2018 Chinese New Year began on Friday and we expect volatility in the gold price next week and speculative longs to be evaluated.
At this moment we are more bullish on silver than on gold based upon the speculative positioning.
Our Take and What This Means for Investors.
Despite the strong run in gold over the past couple of weeks, we are very cautious on the gold rate and would not be surprised to see a correction in the gold price as the speculative position is a bit high today. The Chinese New Year might be the ideal time for it to start.
When it comes to silver, we are more bullish on it than in gold because it is a much more contrarian play in regards to the speculative position with traders being net-short silver. That has traditionally been a good time to buy, and despite a few of demand-side weakness, we would be interested in buying if there is a drop next week.
Therefore, we have a Bearish short-term outlook on gold but a Neutral outlook on silver as we expect silver to surpass gold on a relative basis merely due to speculative positioning.
The red line, which represents the net speculative positions of cash managers, showed the speculative position declining by around 11,000 contracts in silver as speculative longs slightly cut their position while speculative shorts jumped in to increase their own positions by 10,300 agreements.
Taking an appearance deeper at the silver position we see the following COT data:.
Though there is never ever one report or tool that can offer you certainty about where prices are headed in the future, the COT report does allow the little investors a method to see what larger traders are doing and to perhaps position their positions accordingly. If there is a large handled cash short interest in gold, that is typically an indicator that a rally might be coming since the market is saturated and overly pessimistic with shorts – so you might want to take a long position.
The huge downside to the COT report is that it is released on Friday but just consists of Tuesdays information – so there is a three-day lag in between the report and the real positioning of traders. This is an eternity by short-term investing standards, and by the time the brand-new report is provided it has already missed out on a big amount of trading activity.
There are numerous methods to check out the COT report, and there are many experts that focus specifically on this report; we are not one of them, so we wont declare to be the experts on it. What we concentrate on in this report is the “Managed Money” positions and overall open interest as it offers us an idea of how much interest there is in the gold market and how the short-term players are placed.
Todays Gold COT Report
* Gold price information shows the COT week (Tues-Tues) not a basic week (Mon-Fri).
For the week, speculative longs reduced their positions by a substantial 19,660 contracts for the 2nd straight weekly decrease. Regardless of the drop in the net long speculative position, gold only visited.45% for the week, which was primarily due to short speculators likewise closing their own positions.
Carrying on, the net position of all gold traders can be seen below:.
The newest Commitment of Traders (COT) report showed a second straight weekly decrease as speculative longs continued to trim positions, though after a seven-week stretch of successive speculative positional gains this isnt particularly unexpected. Speculative shorts also closed out positions, so we actually had little in the way of conviction from shorts on the decrease in gold through the COT week. We would remind financiers that gold increased after the reports Tuesday close, which suggests that the existing speculative gold position understates how long the market genuinely is.
As for the second point, Producers/Commercials are not picking up the slack in terms of their placing in silver, which suggests to us they are not as optimistic on the demand side for silver as they have been in the past. That is not surprising for us as we still have our concerns about bullion investors cutting back their silver purchases over the previous year to much lower levels.
We would hold back on gold purchases in ETFs SPDR Gold Trust ETF (NYSEARCA: GLD) and equities. We would be really interested in silver ETF purchases in the iShares Silver Trust (SLV), Sprott Physical Silver Trust (PSLV), and ETFS Physical Silver Trust ETF (SIVR) as we anticipate silver to surpass gold on a relative basis and the risk-reward in silver appears to be better than in gold at this time.
Disclosure: I am/we are long SIVR.
I wrote this article myself, and it reveals my own viewpoints. I am not getting settlement for it (besides from Seeking Alpha). I have no business relationship with any business whose stock is mentioned in this article.
We found this terrific article at https://seekingalpha.com/article/4148049-gold-investors-expect-heading-chinese-new-year By: Hebba Investments.
The red-line represents the net speculative gold positions of cash managers (the biggest category of speculative trader), and as financiers can see, we saw the net position of speculative traders decrease by a little under 12,000 agreements to 180,000 net speculative long agreements. In terms of the historic range, the speculative positions are presently on the greater end of their 10-year chart, so we would warn investors to be careful here.
As for silver, the weeks action looked like the following:.