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Gold’s increase in value makes fundamental sense as the world economies struggle through economic hardships. Gold is currently trading above $1,800/oz., the highest level since September 2011. Gold essentially formed a basing pattern from mid-2013 through mid-2019 when it finally broke through $1,400. As gold tests previous highs after advancing nearly 30% in just over one year, it’s a good time to review technical charts and the Commitment of Traders report to see how the commercial traders are positioned.
First, looking at the monthly gold chart over the past 12 years, we see that gold is approaching the highs from 2011. In August and September of that year (typical months to be seasonally strong), price reached as high as $1,923.70. The highest monthly close was at $1,827, where it is currently trading today. Just as in 2011, the Relative Strength Index is currently overbought. One particular item that stands out on this chart is volume. Volume has dramatically decreased from its Q1 levels. For a bullish move to continue, ideally, volume would be increasing, not decreasing.
Next, looking at last week’s Commitment of Traders report from the CFTC, it follows the higher gold prices as large speculators increased their positions from 252,000 to 267,000. However, it also shows that commercial traders added to their short positions going from -287,000 to -301,000.
There seems to be an overwhelming feeling of FOMO (Fear of Missing Out) within the markets, and this is especially evident in the increasingly large position in gold by small speculators. Since Mid-March, small speculators have nearly doubled their gold position, and gold’s price has risen over $300 dollars so far this year. As is usually the case with equities, small speculators tend to invest late in the price cycle. We shall see if that creates a short-term reversal in gold or if this time, the small speculators caught a market in the early stages of a larger move. Keeping an eye on the technical charts and commercial behavior can help place the bigger picture of price levels and extent of moves into perspective.
Disclosure: The author holds and trades both long and short positions within the gold markets.
