For a number of years the market presence of commercial traders has dictated the direction in the price of gold and silver. With deep pockets and by trading contracts in the futures market without having to back up their contracts with metal, commercial traders acting in concert, can raise the price after a pullback, and cap a rally when their computer trading programs signal that price is ripe for a quick drop.
While no group of traders can change a long-term trend, they can control the short-term trend. We saw a clear example of this in June 2013, when out of nowhere and starting early in the morning, (before US markets opened), someone or a group of people, dumped 12,000 gold contracts (totalling about 1.5 billion dollars of gold), on a thinly traded market in the space of hours. At the same time a large number of silver contracts were dumped as well. It was obvious that no one owned this much physical metal – it was simply a case of sellers of contracts smothering physical demand with ‘paper gold and silver’. No trading system can predict the type of market action we witnessed in June 2013. Nevertheless, by studying the COT reports, we can synchronize our trading with the commercial traders, and reduce our risk of being blindsided.