Everyone now loves gold – is that a warning?

You will be hard-pressed to find a gold bear. Is that a sign the market is ripe for turning? John C Burford surveys the charts.

In my last post on gold on 19 February, I related how hedge funds were caught totally flat-footed by gold's sharp rally off the December $1,050 lows. And that rally was fuelled by frantic short covering by the trend-following hedgies. Hedge funds had bet so heavily on continued price falls they had accumulated a record net short futures position a scenario that was unprecedented.

Traders who were alert to this tendency of hedge funds to accumulate huge wrong-way bets at major turns are being well rewarded as we are.

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(Contracts of 100 troy ounces)Row 0 - Cell 1 Row 0 - Cell 2 Row 0 - Cell 3 Open interest: 701,954
Commitments
248,41864,802186,421211,142413,891645,981665,11455,97336,840
Changes from 02/23/16 (Change in open interest: -31,925)
2,016-2,621-15,621-18,961-13,125-32,566-31,368641-558
Percent of open in terest for each category of traders
35.49.226.630.159.092.094.88.05.2
Number of traders in each category (Total traders: 392)
2141011375364313259Row 8 - Cell 7 Row 8 - Cell 8

John is is a British-born lapsed PhD physicist, who previously worked for Nasa on the Mars exploration team. He is a former commodity trading advisor with the US Commodities Futures Trading Commission, and worked in a boutique futures house in California in the 1980s.

 

He was a partner in one of the first futures newsletter advisory services, based in Washington DC, specialising in pork bellies and currencies. John is primarily a chart-reading trader, having cut his trading teeth in the days before PCs.

 

As well as his work in the financial world, he has launched, run and sold several 'real' businesses producing 'real' products.