Positioning & Price in Gold & Silver

Positioning & Price Trends in Gold & Silver

Gold and Silver positions on the COMEX futures exchange are published weekly in what is called the Commitment of Traders Report, or “COT” Report. The COT positioning data shows the futures positions of various participants in the markets and in every asset class, from 10-Year Bonds to Soybeans. My focus is on Gold and Silver.

Key Players in the Gold & Silver Markets

The most significant players are the Bullion Banks and the Money Managers, otherwise known as the Funds. The Banks are considered the smart money because they tend to be right at peaks and troughs in their net positions. Net positions are simply the sum of the long positions less their shorts. Said differently, they are massively net short at major peaks in price. They tend to be close to neutral or even net long at major lows.

The Funds are the Large Speculators and are often called the dumb money because they tend to be massively long at peaks in price and neutral or short at lows.

How COT Data Signals Price Movements

Based on weekly data going back to 2006, peaks in price coincide with massive net short positions on the part of the Banks and massive net long positions held by the Funds. The opposite is true at lows in price: The Banks are neutral or net long, and the Funds are neutral or net short.

Swaps - GLD

Furthermore, when the price peaks, the Banks start to reduce their net short position, and the price of Gold and Silver falls. I know it’s counterintuitive, but it’s true. Case in point, Gold peaked at Oct. 30 at $2802. The Banks were record short on Sept. 24 with a net short position of 260k contracts. Yes, they were a few weeks early, which is not atypical. The same thing happened ahead of the peak at $2089 on Aug. 7, 2020.

Since their record position on Sept. 24, the Banks have been consistently cutting their net short position aggressively, by 68k or 27% in just eight weeks. What has Gold done? It has fallen from $2802 to $2542, a drop of 9% in two weeks. It has since bounced, while the Banks continue to cut their shorts. Again, the COT data signals the next big move one way or another when it hits extremes. It does not forecast micro moves in between. The point being that if the Banks continue to cut their shorts, expect Gold to fall even further.

Money Mgrs - GLD

Role of Funds in Driving Price Trends

Switching to the Funds, they were net long 219k contracts on Sept. 24, their biggest net long position since Feb. 18, 2020, when they were 239k net long. We all know what happened next. Since Sept. 24, the Funds have cut their net long position by 64k contracts to 155k, a drop of 29% in just eight weeks, the mirror image of what the Banks have been doing.

The point here is that if the Funds continue to cut their longs, expect Gold to fall even further.

When it comes to lows in price, it’s just the exact opposite of peaks. The Banks minimize their net short position, go neutral, or even net long. The Funds minimize their net long position, go neutral, or even short.

Historical Positioning and Future Price Expectations

Going back through all the major lows as far back as Oct. 2008, we can see the minimum, maximum, and average conditions for a major low according to the positions of the Banks and the Funds.

Based on the current positions of each, we have some way to go before hitting those ranges for the low in Gold. However, if we see the Banks increasing their shorts again, we could still see a higher high in Gold. The same goes for the Funds should they start adding longs again. But for now, positioning data is pointing south. The same goes for Silver too.

Here is a summary of the relationships between positioning and price with respect to Gold and Silver:

Last, but not least, we have the Thanksgiving holiday. The Bullion Banks like such low liquidity conditions to move the markets with little effort.

Buy gold and buy silver today to secure your financial future.