The following was excerpted from Elliott Wave International’s July Global Market Perspective — published July 2, 2021.
The above chart is updated from March. It plots weekly spot gold prices and Small Traders’ net position in gold futures as a percentage of open interest from 2017. Small Traders are investors who buy and sell futures contracts in a small-enough size to exempt them from SEC reporting requirements. They are considered retail traders. Historically, they are trend-followers, increasing their net-long position as prices rise and vice versa. When they deviate from this norm, it is often a meaningful signal of a coming trend change, though it is not a short-term timing tool. Observe how elevated Small Trader buying has become since gold’s top at $2072.12 on August 7, 2020. Prices are down 15% from the high eleven months ago, but Small Traders hold their largest net-long position in eight years. Small Traders aggressively bought the mid-month price dive in June when gold declined 8% over 13 days. Gold’s decline from August 7, 2020 to March 8, 2021 is not a clear impulse pattern, but the decline from the June 1 high is. The abnormal activity of Small Traders who are buying gold’s “dip” suggests that the bearish case is intact, and the five waves down from June 1 are compatible with this view.
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