Gold miners GDX +.87 to $14.27
Still near 10 year low. I made a small bet on gold miners by buying some near term options on GDX this week.
Read this piece by Jeff Clark.
By Jeff Clark
Thursday, August 6, 2015
When it comes to trading gold, it pays to watch what commercial traders are doing.
Commercial traders are the so-called "smart money." They're merchants, miners, explorers, or bankers in the gold business. They use futures contracts to hedge their exposure to gold and protect themselves from adverse downside moves.
And right now, the "smart money" says we should expect at least a short-term rally in gold…
Each week, the Commitment of Traders (COT) report shows the positions (long or short) of the largest commercial gold traders.
The short position in gold is almost always a positive number – meaning that commercial traders are usually short the metal. That makes sense since most commercial short positions are hedges against a future decline in price.
For example, if a major gold producer wants to lock in a guaranteed price on its gold production, it will short gold in the futures market – thereby hedging its bet.
When gold is trading at a relatively high level and commercial traders expect it to be lower in the near future, the COT short index often hits near 300,000 contracts.
However, when gold is trading low and commercial traders expect the price to increase, the COT short interest often drops to less than 100,000 contracts.
Last Friday's COT report (which goes through July 28) showed that commercial gold traders were short just 14,000 contracts. This is an extreme low level. And based on history, it's a short-term bullish development.
As you can see, the previous extreme low levels of short interest over the past two years marked at least short-term bottoms in the price of gold.
In mid-2013, the commercial trader short interest dropped to just 19,000 contracts. Gold rallied 17% over the next six weeks.
Gold enjoyed a similar rally in early 2014, following a COT short interest of 15,000 contracts.
As of July 28, commercial trader short interest in gold is just 14,000 contracts. That's the lowest level in a decade. And it indicates gold is setting up for at least a short-term rally.
Best regards and good trading,
Jeff Clark
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If the Commodities Boom is Over, I am just a Gold Bug headed for the Windshield of LIFE
