Despite The Gold Pullback, Investors Need To Prepare For This Upcoming Catalyst That May Drop Gold Further
New York (Aug 21) Summary •The latest COT report showed both speculative longs and shorts closing out positions.
•We still have an over-extended speculative long position.
•A hawkish Fed and Janet Yellen's upcoming Jackson Hole speech are potential negative catalysts for gold.
•We don't think it's prudent yet to reestablish our gold and silver trading positions until we see more of a pullback.
Investors saw a slight drop in the gold price last week as gold continued its string of early week gains followed by late week weakness. When all was said and done, gold ended the COT week (closing on Tuesday) only slightly down from the previous week, with both speculative longs and shorts both lowering their outstanding positions. We are still not ready to reopen some of our trading gold positions yet as we want to see a bit more of a pullback from still over-stretched long positions, and with the Fed becoming a bit more hawkish, we are wary of Janet Yellen's Jackson Hole speech scheduled for this upcoming Friday (8/26/16).
We will give our view and will get a little more into some of these details but before that let us give investors a quick overview into the COT report for those who are not familiar with it.
About the COT Report
The COT report is issued by the CFTC every Friday, to provide market participants a breakdown of each Tuesday's open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. In plain English, this is a report that shows what positions major traders are taking in a number of financial and commodity markets.
Though there is never one report or tool that can give you certainty about where prices are headed in the future, the COT report does allow the small investors a way to see what larger traders are doing and to possibly position their positions accordingly. For example, if there is a large managed money short interest in gold, that is often an indicator that a rally may be coming because the market is overly pessimistic and saturated with shorts - so you may want to take a long position.