Gold is soaring, and so are gold stocks and silver. But have prices come too far? Is it time to take profits?
The latest Commitments of Traders report issued Friday and detailing holdings by traders in futures and options markets gives some enigmatic answers, depending on how you read them.
The “smart money” commercial traders have increased their net short position in gold for the third consecutive week. Meanwhile, the “dumb money” large specs and small traders have boosted their net long positions.
Surely, this means we should bail out, you say. I read one analysis this morning that suggested that very course. But my trading system based on the COTs reports says this might be premature. My setups for gold and gold stocks have yet to hit the extreme relative levels needed to trigger bearish signals.
In fact, the only signal in the metals I got from the latest COTs report was a renewed bullish signal in my silver setup. This setup is based on fading the small traders, who’ve hit an extreme bearish position in this market.
I think the fact that there’s no signal in the gold arena underlines the importance of evaluating the COTs data against historic trends, rather than focusing on week-to-week fluctuations, which show precious little correlation with subsequent market prices.
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