Open interest contracts from 1st Jan. 2008 to 11th Feb 2010 - Gold Contracts

The chart above indicates the weekly change in open interest for spot gold over a two year period with the first week of 2008 on the far right of the chart and with last week’s open interest on the far left.  Last week’s open interest  for gold was 466,905 contracts, having fallen from the previous week’s 480,860, the fourth fall in a row from the high of mid January where the short term top was 528,924.  The broader picture for the data clearly indicates the peak which approached 600k contracts in early 2008, down to a low of 261k towards the end of 2008.  Whilst the last four weeks is a relatively short time scale, it does indicate falling open interest coupled with falling prices which could suggest that the gold bulls are either offsetting or squaring off.  This combination is usually taken as a sign of strengthening as once these positions have been squared off then the recent decline in gold prices should come to an end as the longer term bullish trend resumes.   How far this will run in the future is difficult to forecast but the 600k upper limit at least provides us with a guide for future analysis.   Our technical analysis of the spot chart has supported the view that gold is currently in a longer term bullish trend.   One further point to note from the 2 year open interest chart is the first quarter of 2008 where we saw falling open interest against a backdrop of rising gold prices which is normally considered a bearish signal and indicative of a potential reversal in the market which indeed was the case in late March when prices collapsed dramatically.  At the time many market commentators were forecasting a long bull run for gold!!

Spot gold price - Weekly from 1st Jan 2008 to 17th Feb 2010

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No real change since last week other than commercials still selling into a rising market, although the volume of contracts has substantially reduced in the futures market since this time last year.  As an example this time last year  the total number of positions was 141k whereas last week the total number was close to 95k and with commercial short positions having fallen from 100k last year to 64.5k this year.

In the spot market the trend is still bullish longer term although we are currently seeing some sideways consolidation in the market at present due to the economic climate and present round of quantitative easing and financial bail outs.   The perceived wisdom of the stock markets is that the rally of the past few weeks is merely a temporary bull rise which, in due course, is likely to classified as a dead cat bounce.  This in turn could lead investors back to gold and silver as safe havens in uncertain times.

As with silver the futures’ positions of the Commercials shows an expectation of further increases in the price of gold, a position which is likely to remain unchanged until we reach an extreme on the COT index approaching anywhere close to 100, assuming the current trend continues to build as we have seen over the past 20 weeks.   Again I must emphasise that this index is not a timing tool but merely reflects the sentiment of some of the biggest market players and you trade against them at your peril.

As with the gold COT index, so the same picture appears with silver, with the bullish momentum now in place, and whilst we have seen a pullback in the last two weeks which is reflected in the spot silver price chart, unless we see a fall back to the extremes of 5 and below, then COT index should move higher as we see the bullish move continue in the spot market. In the longer term we should see the bullish momentum continue provided the chart does not retrace back into the extreme, but allied with the technical analysis of the chart, and supported by my view of gold prices, I think this is unlikely at present.

The bullish momentum of gold seems to have remained in place with the COT index for this week showing only a minor fall back from the last two weeks, which reflects the pull back in spot gold prices. Assuming the trend continues, then we should see higher prices in gold over the next few months, and until we reach an extreme point which may indicate a longer term reversal.

The weekly chart for crude oil futures, shows little change in the COT index data, with a very low reading once again, suggesting that we are reaching a turning point for the daily oil price, and it would not be a surprise to see oil prices rising in the near future. The trend of the last three months has been for oil prices to move sideways in a relatively narrow trading range between $35 and $50 per barrel. The longer this trend continues them the more dynamic will be the breakout from this range when it occurs. With OPEC having decided not to cut oil production this week, this could add a bullish sentiment to the market this week, and it would not be a surprise to see a break above %50 per barrel as a result. Whilst the COT index is not a timing tool, it can provide us with a direction, and from the data we have seen in the last few weeks, with the commercial contract holders not selling into the market, we should therefore expect a move higher in due course. You can find the latest daily oil price on the live charts, along with the spot silver price and spot gold prices. In addition an economic calendar is now also available which is updated each day with the main fundamental news.

The COT index for silver show little change on last week, with a small change in the contract positions as as result of the decline in the spot silver price last week. Unless this decline continues for the next few weeks, then I would suggest that this is only a temporary reversal in the longer term bullish move in spot silver prices, which have mirrored the rise in the gold market. In my view we still have along way to go for silver before reaching a major top reversal, and until the COT index starts to register at one of the extremes ( either 5-10, or 90 – 95 ) then the trend in the chart will remain in place.  All the latest economic data is now available live on the economic calendar, along with the latest spot gold prices, spot silver price, and the daily oil price.

COT Index Silver - 6th March 2009

Much the same applies to silver as to gold, with the index suggesting that silver has further to run in the current bull rally, despite the pullback that we saw in the candle spot silver price charts last week. With the index in the low 30′ and rising, this is suggesting that the commercial traders are beginning to start selling into the rally, which should therefore continue for some time. What does seem likely from the current index is that gold prices may peak more quickly than silver. We have added an economic calendar for all the fundamental news, along with a live news feed for the latest breaking news.

COT Index Gold - 6th March 2009

The COT index for gold shows that the rally in the price of gold seems set to continue for some time yet, with last weeks data showing a slight pullback from the rally of the last few weeks, which is reflected in the spot market. The candle chart of two weeks ago provided a bearish engulfing candle with a fall this week, but this increasingly looks like a short term pullback with the moving averages acting as support. The COT index is now confirming this view, and we should see a continuation in the bull rally, with a re-test of the $1000 per ounce in the short to medium term. If you would like to see the latest spot gold price, then these are now available on the live spot gold prices chart, and we have also added an economic calendar, which provides details of all the major fundamental news announcements for the following weeks, backed up with a live news feed.