Buy when the big boys buy, and it seems some of the big boys are buying gold

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The most recent Commitment of Traders (COT), which is published every Friday and lags one week behind real-time data, indicated that there has recently been a shift in market sentiment amongst money managers. The shift I am referring to is that the most recent report derived from data collected for the week of August 24. It clearly showed that money managers have been positioning themselves based on the assumption that gold is moving higher. Currently, the collective positions of money managers are holding 126,636 net long contracts. Concurrently the number of short positions has been diminishing. The recent increase of net long positions, and decrease in net shorts in gold resulted in an increase in their long positions by almost 30%.

One factor that has led to this shift in market sentiment by money managers is the unknown effect of the current Delta variant in regards to slowing down the economic growth in the United States. The surge of new infections predominantly due to the Delta variant of the Covid 19 virus has resulted in more than 155,000 new cases per day. More alarming is that the death count has now exceeded 1100 souls losing their lives each day in the United States. According to the New York Times tracker this is an increase of 91% compared to data accumulated two weeks ago.

The vast majority of those new cases (approximately 90%) come from a much younger demographic that is largely unvaccinated. The good news is that it has been reported that vaccine hesitancy has fallen to its lowest level since the onset of the pandemic. According to a recent poll by Axios/Ipsos the number of individuals that are hesitant to get vaccinated has fallen to 20%, from 34% in March.

However, according to one of the largest hedge fund managers, rising inflation will be the overwhelming factor taking gold higher. American billionaire John Paulson who made $4.9 billion using credit default swaps to effectively bet against the U.S. subprime mortgage lending market in 2010, has been a steadfast gold bull, accumulating large holdings of the precious yellow metal during the U.S. housing crisis.

In an interview with Bloomberg TV today and reported by Yahoo News, “John Paulson warns that inflation could spiral out of control. The asset that he believes is poised to take the spotlight is gold… the Fed has had the printing press turned on, and the money supply is pointing toward rising inflation.”

Unquestionably recent data from the commitment of traders’ report coupled with John Paulson’s interview today has revealed that major hedge fund and money managers are increasing their holdings of gold assets and accumulating large positions in gold futures. The adage to “buy when the big boys buy” is based on the belief that the large professional investors seem to be a step ahead of the investment community when it comes to market insight and, as such, could contain extremely meaningful information.

Wishing you, as always, good trading and good health.

Gary S. Wagner - Executive Producer