With gold treading water above the key $1250, I created some analytics to take a closer look at positioning.
The commitment of traders report, issued by CFTC weekly on Friday, has shown a net decline in futures positioning of about 110k in the last 2 weeks to 153k, representing a -45% decline from the 10-year high net positioning this year. This implies managed money has meaningfully reduced it’s positioning, opening up the opportunity for a rally in late 2016/2017.
After combining the net gold futures data from the CFTC and and an index provided by Bloomberg, which tracks gold ETF holdings we see the same decline in overall holdings as before, but interestingly also see a net increase in gold ETF holdings over the same period. While ETF’s are a predominantly chosen over futures by retail investors, in recent years it can be argued that more sophisticated investors have also leaned towards ETFs for a more liquid and cost-effective way to own gold.
Taking a look at the open interest on one of the largest gold ETFs, GLD, we see a continuation of increases in net call positioning, which likely indicates more bullish positioning. While naked call selling could be done by investors with a bearish outlook, research suggests the majority of transactions are initiated by option buyers as opposed to sellers, making this metric more valuable.
In conclusion, gold fundamentals are still in place. Further declines are still possible, but if you have missed the earlier rally, this is likely a good time to get interested in a relatively young gold bull market.