How to read COT Report for Gold and Other Forex Pairs  

Commitments of Traders (COT) reports describe dated positioning, not a guaranteed forecast. Reporting firms submit daily large-trader position reports to the CFTC. The public COT release is normally weekly on Friday at 3:30 p.m. Eastern, with positions from the preceding Tuesday; check the official schedule for exceptions.

In general, the big speculator category represents fund traders and professional traders who hold large positions. Commercial traders also report their net positions to the CFTC. The number of “non-reportable” positions is calculated by subtracting the number of large speculative and trading positions from the total open interest. It is widely believed that this group of traders are small speculators and hedgers who do not hold positions large enough to report to the CFTC.

COT data for the chart can be found at https://www.barchart.com/futures/commitment-of-traders .

 

COT data in the Gold chart | How to read COT Report

The results of the COT report can be used as a tool to give traders a better understanding of the psychology of the marketplace, the net position of the commercials in the market and the net position of the major traders. Large traders (funds) are usually trend followers and will add or liquidate their positions depending on the technical action of the market since the report release date.

There are many different ways to analyze the reports, but we believe that for the most part, the major traders’ net position and the ‘position change’ over a two-week period are the most important numbers to watch. Remember that the small trader’s net position is typically subject to either long liquidation or short coverage when the market begins to move against them.

 

As a result, a classic bullish setup for a given market would be when large traders are net long and small traders are net short. The market is in a weakened bullish setup “when” the two-week trend of the large trader’s position is bearish, or in other words, when the funds are about to unwind their net long position. This is a warning flag. The larger the small trader’s net short position (compared to history) and the extent to which small traders hold a position “against” the trend are factors that will contribute to the bullishness of the report.

 

Assets for the COT report for Gold and other Pairs | How to read COT Report

There is a classic bearish market setup when large traders are net short (bearish if they have increased position in the last two weeks) and small traders are net long in the market (bearish if the net -Long position is relatively large and the trend is decisively down). One exception we’ve noticed lately is the ability of the small trader in T-Bonds to spot the right direction in the market. It is also important that futures-only and futures-and-options-combined reports are kept distinct. The combined series includes options on a futures-equivalent basis; it is not a separate next-day confirmation signal.

 

What does the COT report say? How to take benefits from this report for Gold and other pairs

The Legacy COT report separates outstanding positions into commercial, non-commercial and nonreportable categories. It does not measure the week’s total buying and selling volume. Other report families, including Disaggregated COT, use different participant groups.

Commercial classification relates to hedging activity in the commodity. It does not prove the motive of every position or establish that the group predicts prices better than other participants.

Nonreportable positions are the residual after reportable positions are subtracted from open interest. The report does not identify every trader in that residual or establish a reliable success rate for the group.

Every week we find out exactly what the big ones were up to in the marketplace… but it’s not quite that simple.

The non-commercials are the second most important figure in the report. These are not quite what you think. It’s not just big traders like me.

How to use the COT data? or How to read COT report

If you study this much, you will come across something called the COT Index or Commercials Index. Most followers of the Commitments of Traders Reports now use this index…

 

Despite what you may have read from other traders (people who have only been looking at the index for a few years), it is not a black and white situation. Just because the commercials, the biggest players in the market, have emerged as buyers doesn’t mean a market will recover. How can this be true?

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Long position and short position in Forex

What are short and long positions?

One reason more
speculative investors are choosing to start trading Forex is that it
is possible to speculate that prices will go up as well as down. While a
classic investment is almost always only suitable for hoping for a positive
development of certain values, investors in forex trading can also benefit from
falling rates of the corresponding currency. In the following guide I would like to inform you how you can speculate on falling or rising prices and
what the so-called short and long positions are all about.

Contents:

1. Prices
   rise and fall
2. long
   positions
3. short
   positions
4. Fees
   for long & short positions
5. Build
   a long position
6. Build
   short positions
7. Conclusion

Exchange rates can rise and fall

As you know, forex
trading works by speculating that one currency will rise or fall in value
against another. As a result, forex trading is always based on the value
ratio of two currency pairs to one another, the exchange rate. So if I take for example the euro and US dollar currency pair, the value of the dollar
against the euro can rise or fall at any time. The exchange rate, which
can “run” in one direction or the other, then changes
accordingly. For example, if you decide to speculate that the dollar will
rise, you are simultaneously assuming that the euro will decrease in value
against the dollar for the currency pair mentioned above.

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ECB Interest Tate Decision and Impact on GOLD

ECB interest rate decision

After Fed Chair Jerome Powell’s hawkish speech on the FOMC interest rate decision last week, which hammered the price of gold down, European Central Bank governor Christine Lagarde blew the same trumpet on Thursday. At first glance, the interest rate decision by the ECB did not bring about any changes, but in your speech you made some long overdue admissions, to which the price of gold also reacted with discounts.

She stated that “the risks to the inflation outlook are pointing to the upside” , while so far the country has been reassured and the high inflation rates have been sold as only “temporary”. She added that the board was “unanimously concerned” about the high inflation figures . Lagarde also noted that inflation is “approaching the ECB’s target” but added that it will not raise rates until net asset purchases have ended . While she said in December that rate hikes in 2022 were “very unlikely ,” she didn’t repeat that statement this time .

The ECB therefore expects prices to continue to rise and is groping its way towards interest rate hikes and an end to bond purchases. If you no longer print money that devalues ​​the purchasing power of the euro, there is no reason to keep gold in your portfolio as a hedge against inflation, at least that is the opinion of many investors. For this reason, short-term speculators reflexively sold gold last week and new buyers held back, which put the price under pressure for a short time.

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US Inflation at Record Level, Gold Shoots up

The markets no longer seem convinced that the current high inflation is as “temporary” as the US Federal Reserve would like it to be. It was announced yesterday that US consumer prices rose 6.2% annualized in October – their highest level since 1990. Gold reacted promptly.

In response to the latest data, the price of gold shot up nearly $ 40, the Comex futures were meanwhile 2% up, while the stock markets fell. In early European trading, an ounce of the metal still costs around $ 1,854.

On a monthly basis, the Consumer Price Index (CPI) was up 0.9%, the largest increase in four months. Even the so-called “core CPI”, which does not include the prices for food and energy, increased by 4.6% compared to the previous year, which is the largest increase since August 1991.

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Gold: The BIG Comeback

 In the past few months the gold price has been looking for direction, now it has made a decision: it is going up again. US inflation is likely to play an important role here.

Since July there has been a stalemate on the market – the high inflation actually spoke in favor of a rising gold price, but the prospect of an imminent tightening of monetary policy on the other hand – rising interest rates increase the opportunity costs for interest-free gold.

Now the tug-of-war has been decided in favor of a rising gold price. That is quite understandable. Because the FED is rather hesitant to tighten its monetary policy, with a cautious reduction of the purchase volume of fixed-income securities by only 15 billion US dollars per month. The tapering could last until the middle of next year, and interest rate hikes will only be on the agenda after that.

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