Smart money has never been wrong

I have written this before about the COT reports that present the current bets by the so-called dump money vs smart money on virtually anything (see here). Believe or not, the smart money has never been wrong in their bets, not timing wise as it can be earlier but direction-wise. Sooner or later, it will be proven correct in almost all the things I have seen in the past. This time it won’t be different in my opinion. The smart money right now is voicing a strongest opinion on something: GOLD!

For gold, the smart money is the commercial traders, who have the skin in the game, sort of speaking, as they are the ones who see the real world supply and demand. Due to the nature of their business, they tend to be on the short side for gold futures as hedge as they don’t want to see too much volatility for their gold positions. So most of the time you will see the net short position for the smart money for gold, pretty normal phenomenon. But when they bet in some extreme amount in either direction from time to time, they are sending a clear signal the direction for the gold is going to change. I have never seen them wrong when such a signal is sent. Last Sep in 2018, the smart money had extremely rarely bet with net long positions in the COT, signaling that they were very bullish for gold when it was trading around low $1200. And we know what has happened since then for gold. But right now, the same smart money is betting in an extreme amount on the other direction, nearly historically higher to the net short side. As you know, gold has been in a really bullish mood for months now and it seems nothing can stop it from going further up. After breaking through the 6 year strong resistance above $1500, the long term trend for gold has never been so strong since the start of this multiyear correction phase from 2012. I also believe we have likely seen the actual bottom for gold around $1200ish and the long term bull run for gold may have resumed again. That’s why I have always advocated to hold some gold for long term. But it by no means mean gold will simply go straight higher from here. Gold will always be very volatile with a wide range of fluctuations on its way up. No difference this time!

Apparently the smart money is somewhat “scared” by the parabolic move by gold at the moment and is betting with a huge amount of shorts rarely seen. It means they don’t think gold will shoot up too much higher from here in the next few weeks or even months. Rather a sizable correction will come soon. Just for your reference, in 2016 we saw a great (but short-term) bull run for gold as well but after the smart money was betting with huge shorts in the similar scale, gold gave back all the gains within a couple of months. Given what’s going on in the world right now with so many geopolitical risks expected or unexpected, as well as the technical strength we have seen for gold, I don’t expect it’s a long term directional change for gold, meaning I still believe gold is entering its next leg up channel in the years ahead. But for the short term though in the next few weeks at least, I think the chance is very high that we will see a lot downside risk for gold. This is something I’m betting for my trading money.