COT Report Points To A Meaningful Gold And Silver Rally

In other words, the selling in the ongoing cycle seems to be behind us, and a new short to mid term cycle should have started last week.

To back up our thesis, we are looking at the rate of change of short positions of commercials in the COT report. We have used this time and again, so far each time with success. We have pulled up the gold COT chart (courtesy of Sharelynx, annotations on the chart are ours). Look how each price rally, indicated with the green dotted lines on the first pane, has come with a meaningful change in short positions by commercials (blue bars on the second pane). The key is to focus on the rate of change; it determines the stopping power of a rally. The faster the short positions accumulate, the higher the probability that the rally will be short lived. The points of comparison are obviously previous rallies and price declines.

At present, the commercials hold a very low amount of short positions. Compare their short positions today, i.e. the last blue bar on the second pane, with similar positions in the past. Mind how those positions have coincided with at least short term bottoms, sometimes even mid-term bottoms.

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