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The Strong Jobs Report Drops Gold - Is This A Buying Or Selling Opportunity?

Summary

For the week, we saw speculative gold longs increase their positions - right into Friday's gold price drop.

While we expect next week's report to show a smaller net long position in both precious metals, they are still near historic highs.

We expect a further drop in the gold and silver price as these drops tend to snowball with so many bullish traders already in the market.

In the latest COT report, we saw a rise in the gold long speculative positions, which occurred right before Friday's jobs report related drop in the gold price. Based on the position data from Tuesday, we believe a large chunk of gold traders were probably on the wrong side of Friday's trade. Silver traders were a little less bullish into the COT report close (Tuesday), and we would imagine the next report would continue to show that the bearish side of silver does have a pulse. We have been expecting a bit of a pullback in precious metals based on the historically high bullish positioning - is it time to get back in?

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 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.

The big disadvantage to the COT report is that it is issued on Friday but only contains Tuesday's data -...


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