Quite a bit of chatter this weekend regarding the Gold (and other PMs) COT report. It is true that current positioning is at 18 month relative highs, and we saw further buying this past week adding to the extreme position - now pushing us towards 5 year highs.
However, when taking a closer look at the participants, we see that it's the Producer Merchant category that is aggressively buying, but the Swap Dealers (i.e. banks) were sellers this week of 5700 contracts.
We'd like to see the banks join the prod/merchant category with aggressive buying to solidify the overall Commercial bullish position.
Bulls are looking towards a bullish seasonal period for Gold - and they do have a point here.
Going back to 2000, gold sports a winning % of 78% in August, and 61% in Sept - driven by Festival demand out of India.
We would simply point out that this will be the first August during the past 20years whereby the US is in a full blown trade war with China - Traders' response to this has been to bid the dollar and aggressively sell the CNY and INR along with other EM currencies. As China and India account for a lion's share of gold physical off-take, they simply have less to spend on gold as their currency continues to weaken.
The Dollar is stubbornly holding onto the 23day adaptive channel low, although that channel is slowly rolling over, with negative divergence on oscillators - So we Still are waiting for a confirmed daily close thru 94, to signal that a intermediate term correction is upon us, and that it's safe to start bidding GC/SI again.
If you must get in now, we'd recommend buying Dec futures and Dec puts ATM, or if you prefer the 1200 strike puts will set you back only $15. This will allow you to speculate on upside while managing downside in case this trade war/currency situation gets out of control.