Open interest in NYMEX’s (COMEX) gold futures contracts breached an all-time high of 500,000 this week. Never have so many traders been betting for — or against — gold than right now.
So… you might ask… where’s the smart money, long or short?
“‘The funds’ are long about 46% of the market,” reports Ed Bugos from Vancouver, referring to investors who’re betting the price will go up. “‘The commercials’ are short about 63% of the market,” eyeballing banks. The funds and commercials are a good guide to where your money should be.
“Throughout the ’90s and all the way through 2006,” Ed says, “the funds were right in gold and the commercials were wrong — like clockwork.”
“Starting in October 2005, over a nine-month period that followed record “fund” longs, gold rallied almost $300, or over 70%.” Ed’s looking for a repeat this year. We’ll keep you posted…
Gold closed on Friday at $783.90, another 27-year high. Gold is therefore only $16.10 below $800, which has been my upside target for this year. The gold chart below suggests we may soon exceed that price.
So why did I just sell my mini-gold contracts? Well on a hunch - though I believe this is what caused the hunch:
1. The dollar is due for a pop.
2. I am not sure the Fed will cut rates. I thought about this over the weekend, then the WSJ confirmed that the Fed is debating whether or not to cut, not how much to cut. This could cause a pop.
Hey, the trend of the dollar is down. And the trend of gold is up. So if you are short the dollar and long gold, you'll be OK in the longer run. But I thought I'd try to make a cute short term trade out of this.