The monthly gold chart gives us an idea of trader category capacity as well as defining the current congestion levels.
Now that we have an idea of where we stand let’s take it one step deeper with the weekly chart. This chart helps break down the commercial trader behavior into manageable chunks. The commercial trading group is made up of two groups; the miners and the processors. Miners take action on the sell side to lock in forward prices for the gold they expect to produce while processors use the buy side of the futures market to lock in the necessary raw supply flows.
The gold market’s five-year downward trend has put the gold miners on the defensive. The red vertical lines represent miner selling pressure while the blue vertical lines represent processor purchasing activity. You can see that gold miners have been the major actors in this market as the total position size has grown with each spike of commercial selling pressure. Considering that the commercial trader total position size has been anywhere from 25% – 115% larger than the speculators’ total position, it makes sense the commercial traders’ actions are the most prominent at the market’s turning points simply because of their size advantage. This type of relationship is exactly what we’d expect to see in a bear market like gold that has sold off anywhere from one-third to one-half over the last five years.