Money & Markets: 'Smart Money' Moves Show Gold Is a Buy Now

July 17, 2020

Article by Michael Carr in Money & Markets

Every week, the CFTC publishes the Commitment of Traders (COT) report.

This report tells us who is buying gold, soybeans and other commodities. In the gold market, regulators know who buys a futures contract: a mining company, a hedge fund or an individual investor.

How ‘Smart Money’ Is Buying Gold

Analysts call one group “smart money.” This group is right about major trends more often than not.

In the report, this group is known as “commercials.” For gold, commercials are miners and jewelry companies that produce and use large quantities of the metal.

Hedge funds are called “large speculators” in COT data. They buy when prices are rising, and sell when prices fall.

In the chart, raw data from the COT report is converted to an index that ranges from 0 to 100, with 100 being the most bullish. The solid gray line in the chart marks the midpoint of the range.

While the price of gold moved up over the past couple of months, commercials were buying. They usually buy before big price increases. These purchases show commercials thought gold was a bargain at $1,800.

But in the past few weeks, commercials stopped buying aggressively. This usually happens before a price move accelerates.

At the same time, large speculators ramped up orders. Their buying should cause the recent uptrend to accelerate.

So the two most important groups in the futures market are both positioned for higher prices. COT data, an obscure indicator, tells us gold is ...

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