Major bottoms have come for gold and precious metals when the commercial traders in the futures market go net long gold. This is something that rarely happens and last happened in October of 2018 and then before that in a period from July 2015 to January 2016. Commercials typically are net short gold, because they use short positions in the futures market to hedge their production prices and lock them in. They aren’t speculators or traders, but people using futures as part of their business operations and are therefore the “smart money” in the futures market.
The commercials have been slowly reducing their short position in the past few months, as you can see from this image from Goldseek.com.
Here is a chart of gold with those last two previous time periods where commercials got net long circled.
Historically, buying gold as an investment, and mining stocks, when commercials are net long gold has made for a great entry point. You have to go back to 2002 to the last time that the commercials were net long previous to 2015.
The way things are going now I could see them going net long again by December or early next year.
Until that happens I expect gold to be under pressure as the bear market continues in the financial markets, but at some point gold will stop going down when the stock market does and don’t be shocked if that happens as the commercials go net long in the futures market.
To get in on something with a great long-term buy point you have to plan ahead and be ready for it, so this will become something we will keep our eye on.
BTW – the smaller traders also tend to be net short gold in the futures market on major gold bottoms too.
-Mike
