The gold futures market lost about 25% of its value in 2013. The decline has come in spite of continued easy money policies nearly the world over. The recent rate cut by the European central bank provided no support for the market and neither has the widely accepted outlook that dovish Janet Yellen will succeed Ben Bernanke both physically and spiritually as the new head of the Federal Reserve. We’ve also suggested that we expect the commodity markets as a whole would continue to their uninspired drift lower at least until spring. However, it appears that an important group of traders is beginning to think the gold market may begin to shine sooner than I expected.
WATCH THE COMMERCIALS
My primary screen in the commodity markets is an overlay of the commercial trader positions. It has always been my belief that this group of traders as a whole has access to better information and models than I do as an individual. Commercial traders in the gold futures market are bullish. In fact, this past July their purchases showed them as the most bullish they’ve been in 10 years. Their buying brought the market back from below $1,200 an ounce all the way back to $1,450 before they started selling again. You can see their actions on my gold futures chart.
Currently, the commercial traders are again buying the recent decline and stand within a whisker of surpassing their July purchases. Further adding to their bullish indication is that their net sales through the fall have been relatively mild. These actions provide clear indication that they believe owning gold is a strong value play below $1,250. Their recent purchases have turned the momentum of their buying positive for the first time since early August. I’m keeping a close eye on this market and waiting for signs of a reversal to initiate long positions. Once long, I’ll place a tight protective stop under the swing low once it materializes.
