We have been talking about the short position of the commercials in gold and silver for most of this year. The argument is that the commercial traders are the “smart money” and it is not advised to bet against them, especially when their positions reach extremes. In 2016 we have seen the net short position of the commercials continue to build even as the price has gone up. The post below outlines the correlation between the price of gold and silver and the position of the commercials. For gold it is not the correlation I was expecting…
One final note is is seems as though the commercials start to reverse their position 1 to 2 years before the gold price moves in the direction they were betting on – referencing the top chart below, not the YoY% chart.
Click here to visit the original posting page for this research.
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The latest (5/6) commitment of traders report showed some extreme net commercial positions for both gold and silver. Commercial traders are net short nearly 300k contracts of gold. This is the largest net short position since October 2010. Even as gold is off about 2% today, the net short position in gold should be viewed bullishly for gold. Since the commitment of traders report started tracking gold position, the net commercial potion in gold has had a -69% correlation to the price of gold and a -64% correlation to the one-year change in gold price.
The current net commercial position in silver is even more extreme, however, it is less clear what that means for silver price. Commercial traders are net short about 90k contracts in silver. Other than on 4/29/2016, commercial traders haven’t been this net short of silver since December 2004. However, unlike the commitment of traders data for gold, this series hasn’t had a strong relationship to silver prices. It has had just a 13% correlation to silver prices and a -46% correlation to the one-year change in silver prices.
