Gold’s CoT data predictably improved again this week, but here I think some discussion is needed just in case it starts to get hyped too much.
Below is the CoT on an improving trend of Commercial short covering and large Speculator long reduction. Okay, that’s good. But here is the part where the hype needs to be tuned out. The CoT tends to degrade (i.e. trend in a bearish direction during gold rallies) and improve (i.e. trend in a positive direction during gold corrections). The charts of CoT and gold below are set over the same 1 year time frames…
What I am saying is to watch out for a false blip, possibly coinciding with the festival of hopes and dreams known as PDAC. The sector can at times pump into and during PDAC and plunge after. Just so we are balanced here, it can also keep going up. It depends on the sector’s fundamentals at the time (still not fully baked) and the macro backdrop (in transition). But there is sure to be price movement into and out of PDAC.
Back on point, I don’t believe the improvement trend in the CoT is done yet. Hey great, it has more improvement ahead! But again, real turning points in the metal tend to come when CoT trends exhaust in the contrary direction. Here is a graphic of the above two items combined, showing a ‘blip’ in the CoT (orange) before its ultimate trend change with the November gold bottom.
Bottom Line
We are managing a fledgling gold sector rally coming right around the time of an event that brings out the gold “community” in numbers. There will be speeches and presentations that make a lot of sense to honest people in light of policy chicanery going on 24/7 and 365, globally. But price does not care about speeches. It cares only about what it is.
That is why we, like the earliest cavemen, use tools* so as to not out think ourselves. In October, gold bounced (orange arrow) and the CoT blipped (temporarily reversed its trend in sympathy).
Now, anything is possible I suppose, so if Friday’s fledgling rally (which NFTRH managed in real time for subscribers as HUI came down to our preferred support level and the metals dropped toward ‘must hold’ support) sees CoT continue to improve toward trend exhaustion, fine, we’ll take it.
But right minded would-be gold bugs should be aware that the CoT trend looks not to have completed yet and if it blips toward the negative along with a sector bounce during PDAC, the risk level is going to jump markedly.
As a gold bug I care about honesty in the monetary world and I have my beliefs for the long-term. As a market navigator, I don’t care one way or the other what happens in the coming weeks. All I care about is that NFTRH readers and myself are prepared and on the right side of it. Period.
* The scary and/or titillating stock charts that nearly every analyst uses these days (unlike when I first began managing markets in the 1990’s) only tell one part of the story and it is a very linear story at that. The real tools for success are not titillating, they are boring and they reside beneath the hype. But they, like the above simple CoT analysis are vital in staying on the right path in any market.