Gold Rally factor From SeekingAlpha-Hebba Investments
Long only, value, contrarian, gold & precious metals
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Summary
Last week gold speculators sold their positions despite the rally in the gold price.
This is a relatively rare event and has only happened twice this year.
The week following both of these events led to significant gold rallies.
Demand seems to be picking up in the East where Indian discounts have reversed to premiums and Chinese gold imports increased to the most since January.
These are all good signs that it's time for investors to rebuild their gold positions.
Investors saw a slight rise in the gold price last week as gold seems to be trying to find a short-term bottom. While the gold price movements were not particularly interesting, we did see something very interesting happen in the Commitment of Traders (COT) report last week as the net speculative gold position dropped despite a rise in the gold price. That has only happened twice this year, and each time gold showed a substantial gain the following week. Additionally, the net speculative position dropped once again to the lowest levels since March - which is a positive for the contrarians like us.
We will give our view and will get a little more into some of these details but before that let us give investors a quick overview into the COT report for those who are not familiar with it.
About the COT Report
The COT report is issued by the CFTC every Friday, to provide market participants a breakdown of each Tuesday's open interest for markets in which 20 or more traders hold positions equal 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 number of financial and commodity markets.
Though there is never one report or tool that can give you certainty about where prices are headed in the future, the COT report does allow the small investors a way to see what larger traders are doing and to possibly position their positions accordingly. For example, if there is a large managed money short interest in gold, that is often an indicator that a rally may be coming because the market is overly pessimistic and saturated with shorts - so you may want to take a long position.
