Commitment of Traders (COT) can be used to discover significant peaks/bottoms for several markets. COT is not effective for all markets its most useful for commodities, Agriculture, Metals, and Energy. COT is not a precise timing tool, most times it identifies broad time frames where a turn could occur.
The weekly Gold Futures chart courtesy of Barchart.com shows how the COT can be used to help identify potential turns.
The weekly COT report tracks the Gold Futures positions of three groups, large Speculators, Small Speculators, and Commercials. The group to follow are Commercials, they hold the most Futures contracts.
Commercials need to protect themselves against price declines to do this they hedge in the Futures market. The higher the price goes, the greater the need for hedging. In March 2022 Gold Commercials held the largest net short position in two years. This large short position corresponded with a price peak. Subsequently Gold declined 21% in six – months. Please note that as prices declined Commercials reduced their short position. The low point of the short position came within four – weeks of a significant Gold bottom.
In early September 2024 Gold Commercials exceeded the large net short position held in March 2022. However, in this case prices continued higher for another six – weeks
The late October 2024 price top came on a sentiment divergence – the maximum net short position occurred in late September.
Subsequent to the late October price top Gold Commercials have been reducing their net short position.
Seasonal patterns for Gold are bearish into late December/early January. There’s broad chart support in the 2,280 to 2,390 area.
Gold could make at least an intermediate bottom in the chart support zone by late December 2024 or early January 2025.
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