Last Thursday I posted a gold buy alert based on several factors including the recently strong bullish momentum in the gold and silver mining company stock indices HUI and XAU, an overbought U.S. Dollar Index, and the fact that we are in August - a month that is traditionally bullish for gold. One set of data that was not available to me last week which I have analyzed today is the Commitments of Traders (COT) Report for gold. Briefly, for those not familiar with this report, this weekly chart (put out by the Commodity Futures Trading Commission) shows the short and long positions of "smart money" (Commercial Traders) in gold (and silver). The Commercial Traders are rarely wrong in their assessment of price direction. Earlier this month they seemed to be turning bullish, but last week's data
showed a sudden surge in their short gold positions which, unfortunately, suggests that gold prices could turn down.
The bullish factors mentioned above are still intact, but this new COT data now puts us on the defensive with our long positions, and we want to maintain a tight stop loss in the $1290 - $1300 area. Ideally we want to see gold prices rise to at least the $1340 level before selling, but the COTs are suggesting that we may have to sell sooner. Even though the U.S. Dollar Index is highly oversold and was pulling back a bit on Friday from a strong resistance zone, its momentum remains strongly bullish so there is the possibility of it breaking higher which would not be good for gold prices. We will watch these markets carefully now. Still long in gold but watching carefully for any signs of weakness.