Gold, silver and platinum have witnessed remarkable sell offs over the last month as the U.S. dollar screamed higher.

Our research has indicated that specifically, over the last two weeks, many of these markets have become terribly oversold in the face of commercial traders who are actively purchasing these metals at these prices to store for later use. It appeared last Thursday, as though the overextension in many of these markets was about to pull back. Our strategy in following the Commitment of Traders reports has always been to use the commercial traders’ knowledge and economic weight to notify us when a move may be overdone and will revert to its mean.

Commercial Players

Our mean reversion strategy is composed of both a fundamental and a technical component. Both are at work, here. First of all, commercial traders have been buying the metals hand over fist over the last few weeks. Their buying has been strong enough to shift their momentum from the sell side where they were through mid-August now, to the buy side in gold, silver, platinum and copper. We track the commercial traders’ actions as a proxy for fundamental value in a market. After all, no one knows a market better collectively than those who base their livelihoods on it. Secondly, we use a technical component that is basically an overbought/oversold indicator that we’ve developed within one of the popular neural network programs. We’ve setup many of these trades on our Recent Trades page.

Trading Trigger

The trigger here is twofold. First of all, the Sunday night metals sell off has recovered nearly in full. It makes all the sense in the world that the market would flush while most of the world is sleeping and unable to take advantage of it. The overnight flush and bounce will register as a clear bullish divergence in our indicator and a strong close would bring it back above the oversold level at, least in the gold market. We also view silver as attractive down here based on our article on TraderPlanet last Monday. Secondly, platinum and gold traded at parity overnight. We’ve been watching this spread closely and will explore it in greater detail later on this week.

We’ll end with this thought; “Given the same price, would you rather own an ounce of gold or, an ounce of platinum?”