Disclosure: Our content does not constitute financial advice. Speak to your financial advisor. We may earn money from companies reviewed. Learn more
Last Updated on: 10th February 2023, 11:55 pm
The latest Commitments of Traders report shows that large commercial firms, sometimes called the “smart money” for their ability to accurately forecast turns in the gold market, have been increasing their long positions –bets that gold will rise. While the so-called smart money, consisting of commercial interests involved in the production, processing, and merchandizing of gold, is by no means always correct, the actions of these firms certainly bear scrutiny. Those considering opening a Gold IRA may certainly want to take note, given the accuracy this indicator has displayed in the past.
Analyzing the CoT report
Produced by the Commodities Futures Trading Commission, the weekly Commitments of Traders report breaks futures market participants into three categories, consisting of the aforementioned large commercial firms, large traders (made up mostly of hedge funds and institutional money managers), and small traders (mostly individual retail traders). Observers of these reports claim that while the commercial traders often are positioned properly in advance of major moves in the gold market, in the case of large traders and small retail traders, the opposite is often true.
Given that hedge funds tend to be trend followers, they are often seen to be on the wrong end of the trend when a reversal in direction occurs, with the same being true of retail investors in many cases.
In a report from May 27th, EuroPacific Canada states that the large commercial traders saw their positions rise from a low in October 2012 of a net short 269,270 contracts, to a high of a current net short 84,122 contracts. Given the hedging against future production that many of these firms do, this shows them to increasingly bullish. At the same time, large traders are long only 83,726 contracts, the most bearish they have been since October 2008. Small retail traders were net short 1,704 contracts, one of the most bearish readings seen in this indicator in quite some time.
Buying for the Long Term
If you are considering opening a Gold IRA, it should be noted that this is not an investment vehicle designed for short term trading. Given the various penalties involved in withdrawing from an IRA before the age of 59 ½, they are best used as vehicles for accumulating long term retirement funds. That being said, opening a Gold IRA to buy on a dip in the price may be worth looking into for those investors who believe in the long term potential of gold. With its track record of acting as a hedge against inflation, gold can provide a source of diversification for your IRA portfolio as well as a means of helping protect your purchasing power should the cost of living rise substantially.
Get Your Free Gold Kit to Learn More About Adding Gold to Your IRA
If you’ve made the decision to open a Gold IRA, the next step is to find a custodian that will allow you to hold precious metals such as gold in your IRA. In this regard, we highly recommend requesting the free gold investment kit below.