Futures Speculators Pile Back Into Precious Metals

The latest Commitments of Traders data from the CFTC (as of market close 10/20/2015) shows that both hedge funds and smaller traders alike have piled into gold & silver futures in recent weeks as commercials (mining companies and bullion banks) have taken the other side of the trade:

 

Gold_CoT_10.23.2015

 Large & small futures speculators combined to increase net long exposure in gold by more than $5 billion in the last week. Commercials took the other side of these bullish bets and now hold their largest short position since January, when gold put in its high for the year. 

The situation in gold’s ‘little brother’, silver, is even more extreme with hedge funds piling in long at a record pace while commercials have accumulated their largest net short position in nearly 5 years:

Silver_CoT_10.23.2015

 

 

Silver_Cot_Chart

Such extreme shifts in precious metals futures positioning would typically be construed as bearish with a strong likelihood of a short/medium term top being put in place already or in the very near future. However, such a significant shift in market participant positioning can also be characteristic of a strong trend that is just getting underway.

I believe it is more likely that precious metals are in the midst of a major bullish shift. While gold & silver are probably due for some short term consolidation (sideways to slightly lower) the odds are quite good that prices will be higher at year end than today’s closing levels.