Recent data from the CFTC showed large specs scaling back on bearish positions in gold. The last two reporting weeks have seen a significant decline in bearish bets, as prices have moved higher on improving sentiment and an increasingly bullish technical posture.
Commitment of Traders
The disaggregated report by the CFTC reportedly showed that the net-short position in gold futures had declined from 49,382 the week before to 38,116. To put the recent shift into perspective, the net-short contracts figure stood at 109,454 as recently as October 9th. The most recent reporting period showed the number of shorts declined by 7,231 while the number of longs increased by 4,035.
The shift in positions comes as equity markets have been in meltdown mode in recent weeks. Increasing risk aversion has likely fueled some short-covering, while fresh longs have also entered the market.
The next real test for the gold market may be as stocks look to stabilize following the recent route and spike in market volatility. Although additional equity market weakness could lead to further gains in the yellow metal, the bigger question may be what the market does if stocks start to move higher again. The ability to maintain recent gains despite lower stock market volatility and/or rising stock prices could be another indication that a market bottom has been reached.
Why Do Investors Care?
Investors often monitor the Commitment of Traders (COT) report in order to gauge market sentiment. The data may also be used to try to identify overbought or oversold conditions in which a significant imbalance exists that could potentially point to a price reversal.