Waiting for the Specs

There's a notion going around that somehow COMEX gold is overbought and in some sort of exuberant speculative bubble just because price is near all-time highs. Let's dispel that myth today.

I'm sure you’ve seen this idea bandied about by permabears and others with an axe to grind. The COMEX gold price is near an all-time high, so surely it's a bubble that's about to pop. As if every cab driver and shoe shiner is suddenly investing in gold and gold miners.

The current open interest and Commitment of Traders positioning betrays this notion. For proof, all we have to do is go back and look at a few metrics from the previous two attempts COMEX gold made at breaking above the $2000/ounce level.

Let's start with the summer of 2020. In hindsight, this was a time when too many (yours truly included) were bullish on gold. QE4 was fully underway in an economy that was reeling from Covid shutdowns. Three days before the price peak of $2078 on August 7, 2020, there was a Commitment of Traders survey. What did it show?

• "Large Speculators" gross long 321,847 COMEX gold contracts and gross short 83,101 for a NET long position of 238,746 contracts.
• "Commercials" gross long 119,109 contracts but gross short 395,454 for a NET short position of 276,345 contracts.
• Total COMEX gold open interest of 561,837 contracts.

About a year and a half later, Russia invaded Ukraine and the prices of all commodities temporarily soared. COMEX gold hit a peak of $2079 on March 8, 2022, and by chance, that was a Tuesday, so we have Commitment of Traders data from that very day. What did it show?

• "Large Speculators" gross long 364,618 COMEX gold contracts and gross short 90,230 contracts for a NET long position of 274,388 contracts.
• "Commercials" gross long 139,397 contracts but gross short 446,343 for a NET short position of 306,946 contracts.
• Total COMEX gold open interest of 638,502 contracts.

So now fast-forward to last Tuesday, April 4. On that day, COMEX gold hit a high of $2043 and then traded as high as $2049 the next day. It has since pulled back about 2%, so was this a "speculative bubble" and is the gold price about to fall precipitously?

Again, let's check the Commitment of Traders data. This most recent survey was also on Tuesday, April 4.

• "Large Speculators" gross long 266,164 COMEX gold contracts and gross short 70,948 contracts for a NET long position of 195,216 contracts.
• "Commercials" gross long 116,869 contracts but gross short 335,119 for a NET short position of 218,250 contracts.
• Total COMEX gold open interest of 476,592 contracts.

As you can see, both the Large Speculator NET long position AND the Commercial NET short position remain far below the levels seen at the previous two price highs. Also, be sure to note that total COMEX gold contract open interest remains remarkably low and at just 60% of its all-time high of 798,822 contracts on January 23, 2020.

Does this data ensure that the COMEX gold price will continue higher from here? No.

Does this data signal that a price pullback is imminent? No.

Can this data be interpreted as a "speculative bubble"? No.

Does this data indicate that another leg higher to new all-time highs is possible? Yes.

So, watch price closely in the days to come. The Commitment of Traders data suggests there's plenty of "room" for price to run should speculative interest increase with a move to new all-time highs above $2100/ounce. As we wrote in our 2023 forecast back in January, any move to new highs would likely bring a fresh rush of speculative cash to the sector, prompting a further rally to near $2300.

We'll have to wait to see what happens next as events continue to play out. However, there is nothing in the current data to show that COMEX gold is currently in "a speculative bubble". Therefore, any move to new highs above $2100, when it comes, is likely to bring even more upside in the weeks that follow.