After an already dismal year, gold has lost another 11% in the last five weeks.
Is this the last washout sell off before a sustainable rally?
One clue is provided by the Commitment of Traders (COT) report, which tracks the long and short gold futures positions of various types of traders.
Investors basically get a peek at what the ‘smart money’ and ‘dumb money’ is doing.
The chart below plots the SPDR Gold Shares ETF (GLD) against the long gold positions held by Non-commercial traders. Non-commercials are large speculators.
View enlarged GLD ETF / COT chart here
Even a brief glance at the chart shows that large speculators tend to find themselves at the wrong side of the trade (red and gray vertical lines).
The amount of long gold futures contracts owned by non-commercials has dropped to a five-year low.
The amount of gold tons held in the SPDR Gold ETF and iShares Gold Trust (IAU) echoes the message of the above chart. The amount of gold held by gold ETFs GLD and IAU has shrunk over 30% since the beginning of the year.
Gold sentiment suggests that the worst of the decline is over. Unfortunately though, gold sentiment alone can be an hap hazardous indicator.
I always base my gold research on various types of research. Sentiment is one of them, technical analysis and seasonality another.
Quite frankly, technical analysis has produced any good buy/sell signals for gold, GLD, IAU or the UltraShort Gold ProShares (GLL) recently.
However, gold has very much respected technical support and resistance. The gold chart below was previously published in the Profit Radar Report. The blue dots highlight how well technical support and resistance has worked recently (and for the entire year for that fact).
Near-term resistance as around 1,255. There’s no critical near-term support.
It appears to me that – with or without bounce – a washout, ‘throw-in the towel’ type sell off is still missing.
We are now starting to gear up for the next long-term trade that may see a 200+ point move.
The long-term analysis for gold featured in the below article provides more details about the next 200+ gold trade.
Long-term Gold Analysis - When's the Time to Buy Gold? (first article listed)
Simon Maierhofer is the publisher of the Profit Radar Report.
Follow Simon on Twitter @ iSPYETF
More From iSPYETF
- The Most Underrated New Record for the Guinness Book
- Wrong-footed? Active Investment Managers are Record Long
- Major U.S. Indexes Suffer Bearish Breadth Divergences
- Gold Investing