Message: Gold Heading to $3,000?
Gold Headed to $3,000?
By Alex Roslin
Oct 29 2007 4:04PM
www.cotstimer.blogspot.com
As gold inches toward $800, analysts and traders are wringing their hands about how much higher bullion prices can fly. Of course, the usual gold bugs have come out to say gold is headed to $3,000 and that the U.S. dollar is as worthless as “toilet paper,” as one reader informed me the other day.
The latest Commitments of Traders report issued Oct. 26 continues to present a mixed prognosis for precious metals. The “dumb money” small traders in gold futures and options have been reducing their net long position for the past six weeks and are now decidedly bearish when compared to past data. It’s for this reason that I’m still long Canadian Gold iUnits (symbol XGD). I’ve developed a trading setup that buys XGD when the gold small traders are at a bearish extreme in their net position and sells when they’re highly bullish. And this setup is presently still on a bullish signal.
However, my setups for gold itself, the HUI Gold Bugs Index and USERX U.S. Gold Fund all slipped to bearish as of the Sept. 25 COTs report and remain so as of last Friday’s report. These three setups are all based on the positions of the “smart money” commercial gold traders, who have lately gotten super-bearish. Last Friday’s COTs report saw them slightly reduce their huge net short position, but nowhere near enough for me to get bullish again in these three setups.
All this raises an important question about the COTs reports. How do we decide which group of traders to follow? The three groups of traders—small traders, commercials and large speculators—are often positioned such that they give quite contradictory signals. What does it mean, for example, if the commercials are highly bearish, while the small traders are neutral, as happened recently in the gold COTs data. What do we do when the large specs and commercials are both highly bearish at the same time?
My solution was to test the past data to find which one had the best predictive powers. In some markets, trading with the commercials proved to be the best route. In others, it was better to fade the small traders or large specs. In a few markets, it’s actually best to trade on the same side as the large specs or small traders, believe it or not. The lesson is, contrary to popular notions about the COTs reports, each market has quite a different personality. I think it’s important to filter out the noise in the COTs data and focus only the traders who have shown the best, most statistically robust past performance.
For this reason, I fade the small traders in my silver trading setup, and this setup also remains bullish as of the latest COTs report. The data doesn’t tell me if gold is going to $3,000 or if the U.S. dollar is really going to end up worth no more than toilet paper, but my setup for the U.S. dollar index is still bearish, as is my setup for copper. Visit my free COTsTimer.Blogspot.com blog to learn more about these setups and to see my signals in equities, currencies, energy, Treasuries and agriculture. Good luck this week.
COTS SIGNALS FOR 26-OCT-07
New signal 1
Rene-wed signal 2
COTs Timer Ratio 3
Existing signal (signal date) 4
COTs system profit 5
Index profit 6
COTs vs. Index profit 7
Larg-est draw-down 8
Traders to watch 9
Gold 10
-
-
-0.45
Bearish
(25-Sep-07)
351.6
174.1
By Alex Roslin
Oct 29 2007 4:04PM
www.cotstimer.blogspot.com
As gold inches toward $800, analysts and traders are wringing their hands about how much higher bullion prices can fly. Of course, the usual gold bugs have come out to say gold is headed to $3,000 and that the U.S. dollar is as worthless as “toilet paper,” as one reader informed me the other day.
The latest Commitments of Traders report issued Oct. 26 continues to present a mixed prognosis for precious metals. The “dumb money” small traders in gold futures and options have been reducing their net long position for the past six weeks and are now decidedly bearish when compared to past data. It’s for this reason that I’m still long Canadian Gold iUnits (symbol XGD). I’ve developed a trading setup that buys XGD when the gold small traders are at a bearish extreme in their net position and sells when they’re highly bullish. And this setup is presently still on a bullish signal.
However, my setups for gold itself, the HUI Gold Bugs Index and USERX U.S. Gold Fund all slipped to bearish as of the Sept. 25 COTs report and remain so as of last Friday’s report. These three setups are all based on the positions of the “smart money” commercial gold traders, who have lately gotten super-bearish. Last Friday’s COTs report saw them slightly reduce their huge net short position, but nowhere near enough for me to get bullish again in these three setups.
All this raises an important question about the COTs reports. How do we decide which group of traders to follow? The three groups of traders—small traders, commercials and large speculators—are often positioned such that they give quite contradictory signals. What does it mean, for example, if the commercials are highly bearish, while the small traders are neutral, as happened recently in the gold COTs data. What do we do when the large specs and commercials are both highly bearish at the same time?
My solution was to test the past data to find which one had the best predictive powers. In some markets, trading with the commercials proved to be the best route. In others, it was better to fade the small traders or large specs. In a few markets, it’s actually best to trade on the same side as the large specs or small traders, believe it or not. The lesson is, contrary to popular notions about the COTs reports, each market has quite a different personality. I think it’s important to filter out the noise in the COTs data and focus only the traders who have shown the best, most statistically robust past performance.
For this reason, I fade the small traders in my silver trading setup, and this setup also remains bullish as of the latest COTs report. The data doesn’t tell me if gold is going to $3,000 or if the U.S. dollar is really going to end up worth no more than toilet paper, but my setup for the U.S. dollar index is still bearish, as is my setup for copper. Visit my free COTsTimer.Blogspot.com blog to learn more about these setups and to see my signals in equities, currencies, energy, Treasuries and agriculture. Good luck this week.
COTS SIGNALS FOR 26-OCT-07
New signal 1
Rene-wed signal 2
COTs Timer Ratio 3
Existing signal (signal date) 4
COTs system profit 5
Index profit 6
COTs vs. Index profit 7
Larg-est draw-down 8
Traders to watch 9
Gold 10
-
-
-0.45
Bearish
(25-Sep-07)
351.6
174.1
1 Recommendations
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