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COT: Rapid Pace of Gold Buying Cause for Pause

COT: Rapid Pace of Gold Buying Cause for Pause

What’s inside:

  • Gold large speculators ramp up buying at extremely fast clip, suggests pause is coming
  • Euro net-long at highest level since May 2011, buying slowing as price action slows
  • Charts of large spec positions for other major currencies and markets

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Every Friday the CFTC releases the Commitment of Traders (COT) report, which shows traders’ positioning in the futures market as it stands for the week ending on Tuesday. Displayed in the table below are the net positions of large speculators (i.e. hedge funds, CTAs, etc.); the change in their positioning from the prior week and where the net position stands relative to its 52-week range.

Noteworthy developments

Gold – Large speculators are once again ramping up their net long position, as the current 245.3k contracts is the highest level since the week of October 7 when it was at 245.5k, and in the upper bounds of what we have seen on a historical basis. Perhaps the bigger concern here is not the overall size of the position, but the speed at which it has been built. Since the week of July 21, net positioning relative to where it has stood over the prior 52 weeks has risen from 0% to 92%. In other words, we have seen net long positioning go from the smallest in a year to nearly its largest in a year over a period of less than two months. In the past, such sharp moves have proceeded reversals or periods of choppy trading, even during the raging bull days of 2010-2011. The last time we saw a similarly sharp rise in long positions was in early 2016 prior to gold chopping sideways for three months before eventually making another thrust higher.

Euro – Through last week, large speculators built their net long position to its largest size (96.3k contracts) since the week of May 6, 2011 (99.5k). It’s slightly higher than the 93.7k recorded a month-ago, so momentum in buying has eased in recent weeks, as so has momentum in price action. Evidence is building that we may soon see the euro make a meaningful turn lower, as momentum wanes at long-term resistance while sentiment is at an extreme. Back in May, when large specs (trend-followers) flipped from net short to net long we noted their propensity for accurately identifying trends in the euro. But at this juncture, risk of a shake-out is growing by the week.

The COT report is a longer-term sentiment indicator – for a short-term view on sentiment, check out IG Client Sentiment data.

Other futures contracts and large speculator positioning:

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---Written by Paul Robinson, Market Analyst

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.