- A sharp reduction and increase in commercial trader shorts and longs, respectively. A sharp rise in net long as percentage of open interest (NL%OI) reflects this setup. A rise above -20% suggests panic among the spec and retail traders and an approaching bottom (chart 1).
- When the weakest of the weak (hands) capitulate, NRWA falls below 20% and approaches 0%. As of 02/19 (chart 2), it stands at 13%.
- A rising diffusion index above 60% confirms the significance of the above.
Chart 1: Gold London P.M Fixed and the Commercial Traders COT Futures and Options Net Long As A % of Open Interest
Chart 2: Gold London P.M Fixed and the Commercial (C) & Nonreportables (NR) Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest
- The management of paper influences expectation and the physical market.
- As the physical increasingly dominants the paper market, gold becomes more difficult to manage.
- Paper gold investors that do not foresee the inevitability of (2) could be vulnerable despite rising prices.
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