COT-Report (Large Speculators)
First, what is the COT report? The Commitment of Traders (COT) is a report published by the governing body of commodities trading in the United States, the Commodity Futures Trading...
...Commission (CFTC). According to the CFTC's website, "The COT reports provide a breakdown of...open interest for futures and options on futures markets." But what does this mean in plain English?
The COT report shows which categories most (but not all) traders who engage in gold futures trading belong to. In the gold investment world, most discussions on COT focus on two major categories of participants:
♦ Commercials - actual producers and consumers of a commodity that use futures to sell, buy, and/or hedge their gold.
♦ Speculators - those who buy or sell contracts in order to attempt to profit from a change in price. Speculators may further be defined as:
♦ Large speculators – hedge funds, large trading desks, etc. The largest component of the category. And...
♦ Small speculators – typically individual traders. A small portion of the total.
From 2002 through 2010, speculators continued increasing their net longs while commercials increased their net shorts. Meanwhile, the price of gold continued to rise. Speculators were clearly on the right side of this trade for nearly a decade.
Takeaway on Gold Prices and the current COT Report
History shows that speculators have been correct more often than not over the past 25 years or so! After all, (Theory says and proves here to be right...) speculators would not be in the business of price discovery for long if they were consistently wrong.
So now as per September 2020: Speculators are still net LONG - already since the whole year of 2019.
In closing, CoT data doesn't always work. Sometimes producers and users are on the wrong side of a trade for months. With that being said, one could consider CoT analysis to be a useful tool when incorporated with other fundamental and technical approaches. I hope you may find it useful too.