by Jordan Roy-Byrne, CMT
The Daily Gold
Nearly two months ago I published a video in which I discussed conventional CoT analysis and the mistake many investors might make assuming Gold and gold stocks would undergo a big correction. The fact is a bull market that follows a nasty bear usually stays very overbought throughout its first year and therefore sentiment indicators remain in bullish territory. As a result of the primary trend change, conventional CoT analysis fails and requires an adjustment. Today we look at the Gold and Silver CoT’s while harping on a few of the mistakes people are making.
The first mistake people are making (and I’ve seen this quite a bit recently) is painting the commercial traders as smart money. This completely mischaracterizes that group. Commercial hedgers are the users, producers or consumers of the commodity. They are using the futures market to hedge in some way. As Steve Saville writes in his explanation of the CoTs, the commercials usually do not bet on price direction. Generally speaking they tend to fade the trend while speculators drive or follow the trend. Risk certainly rises for bulls when speculators increase long positions aggressively and we should be aware of that. However, we should look beyond nominal figures to get a better reading of the degree of speculation.