Smart Money Still Betting on Gold
A commentary on recent events by National Gold Group’s Michael Carr – July 3, 2012
Traders often refer to some traders as “smart money.” In the stock market, smart money includes the officers and insiders at a company who know the business better than others. They buy when they believe the stock is at a bargain level based on their inside company knowledge. In the futures market, the smart money is the commercials. For the gold market, these are the miners and industrial users of the metal and they buy when they think the price of gold is at a bargain level. If they believe gold is overpriced, they can wait to make purchases or they can even sell. Since March, commercials have been very bullish in the gold market.
The chart below uses data from the US Commodity Futures Trading Commission. Large traders and the commercials are legally required to report their trading activity and the CFTC issues a summary of that data each week. In the chart below, the raw data is transformed into a range from 0 to 100 with high values being bullish. Commercials are shown as the green line below the price of gold and they are bullish. Hedge funds and other large speculators are shown as the black line and they are bearish. Over time, the commercials tend to be right and the hedge funds as a group tend to be net losers.
Gold’s recent decline has been viewed as a buying opportunity by those who know the market the best. Smart money is buying gold, and that is usually a good time for individual investors to be buying as well.
The above commentary is for informational purposes only and is not a solicitation by National Gold Group or Michael Carr. It is the commentator’s opinion only and not intended for investment recommendations, and does not necessarily reflect the views of National Gold Group. Any references to outside sources are believed accurate. Past performance is not a guarantee of future results. All commodities involve risk. Investors should consult their financial advisor before making any investment decisions.