Speculators Are Finally Bailing Out Of Gold – And That’s A Good Thing
As gold rose, the futures contract traders whose games tend to dictate near-term price action had set the metal up for a fall. Specifically, the speculators (who are always wrong at the extremes) were ridiculously long. With the suckers all-in, a big correction was needed to restore balance.
But it didn’t come. Several months passed with gold treading water, leading some to wonder if the paper market tail had finally stopped wagging the physical market dog.
Now the long-overdue correction seems to have arrived. Gold is down 11% from its recent high, and the speculators are bailing. Here’s the Commitment of Traders (COT) report (courtesy of GoldSeek) for the week ending Tuesday the 15th showing a 17% drop in large speculator long positions. That’s a huge move for a single week. And based on the price declines of the subsequent three days, it’s likely that the next report will show a similar drop.
Typically, a bottom occurs when both commercials and speculators are flat — that is, carrying more-or-less equal long and short positions. The latest report is still a long way from that kind of balance.
But another few weeks like the last one and this indicator, at least, will be screaming “buy”.