Andy Waldock @waldocktrades
The commercial traders collectively pull a commodity out of the ground or, process them for resale. Commodity producers sell their forward production while processors lock in future supplies. We use their actions as reported in the Commitments of Traders reports to predict market turns in overextended markets carrying large speculative positions. The gold chart notes our analysis as published in Modern Trader magazine beginning with a late December COT Buy signal and the associated strength we discussed in the January issue.
The record speculative position and reading in our COT Ratio indicator forecasted an unsustainable July rally. Miners’ record selling of forwarding production coupled with no fear in the processors’ bid led to the conclusion the speculatively fueled rally was running out of gas. Finally, the speculators’ last gasp to push the market higher this fall generated little traction in prices. Gold producers’ still controlled the market, which forecasted deeper declines through year-end.
Looking at the natural gas chart is based on the same principal but lists the actual trades and protective stop prices from the nightly email service. Natural gas drillers confirmed that the fall rally was driven by hurricane speculation as they confidently sold forward production into the October seasonal high. The market then fell by more than $70 or, $7,000 per futures contract during the next three weeks.