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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With Japan’s fiscal year end now passed, we can begin to focus with more confidence on the COT index for the Japanese yen.   However, as always we need to bear in mind that the COT index must be viewed as a sentiment indicator and not a timing indicator and cannot always be correlated with the spot market.   All the index is telling us at present is that the commercials are continuing to build long futures positions in the Japanese Yen and that this will translate into Yen strength at some point in the spot forex market.

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The COT data for this week shows an increase in the cot index which is now starting to climb away from the extreme lows of the last few weeks, suggesting that we are now seeing the long awaited reversal in the Australian dollar, a move which is reflected in the spot market against many other currencies, of which the US dollar is typical. A look at the weekly chart for the Aussie dollar, reveals a double bottom over the last 6 months, with a breakout from this trading range now imminent, and with a wide spread up bar, the AUD/USD pair are poised to break through the resistance level at 0.7090.   However as always we need to bear in mind that the COT index is a direction indicator only, and not a timing indicator, and should only be used to reinforce or support our view of the spot market.

All the latest fundamental news is now available on the economic calendar, and if you are looking for the latest live price for the AUD/USD currency pair, then just follow the appropriate link. Finally, if you are looking for a good ECN broker I have provided some details on what to look for when choosing your broker.

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 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 Silver - 8th February 2009

Silver and gold will always tend to follow one another, with gold prices often performing better in a bullish  move then gold, but conversely they tend to perform worse in a bearish market. Last week we saw a rise in the Silver Index to 22, and this suggests that we are now starting to see a rise in silver prices in the short to medium term, with the low of 15 weeks ago providing a turning signal. As many of you may know I am bullish on silver so this is good news. If you would like to follow my daily posts on spot silver prices, then please just follow the link. We cannot  draw any further conclusions from this week’s data which is very close to last weeks.