Long Gold or Silver? Watch This Indicator As a Sign of a Peak

Gold and silver have been on tremendous runs lately. Gold is up over 40% from its March low while silver has more than doubled.

If you are long precious metals stocks, metals ETFs, or the metals themselves, congratulations on your gains.

At this point, however, you might be asking yourself it’s time to look at taking profits on all or part of your position. I have an indicator for both gold and silver that I believe will help you determine when it is time to start taking profits.

I have been studying sentiment analysis for 20 years now and there is no better sentiment indicator than the commitment of traders (COT) reports for commodities. The COT reports are issued by the Commodity Futures Trading Commission each Friday.

The reports show the collective holdings of three different categories of investors. There are large speculators, small speculators, and commercial hedgers.

You can find the reports in a number of places, but I like to use BarChart.com because it has the COT numbers as an attachment to the chart for the commodity.

Personally, I find the large speculators to be the most influential because these are the big money investors that can swing the market one way or the other.

From what I have found, there seems to be certain thresholds that mark a point where the sentiment is too bullish for both gold and silver.

Watch large speculator volatility

The weekly chart of gold is below and it has the COT levels at the bottom of the chart. Large speculators are marked in green and we see that the group as a whole is net long 236,801 contracts.

That level is good news for the price of gold because if you look at the four red lines on the chart, those are instances where large speculators were net long more than 300,000 contracts.

Notice how gold prices slipped, or at the very least became more volatile, when large speculators became too bullish. (Please note that the group may have held more than 300,000 for a few weeks in a row, but the lines mark the first week when the threshold was crossed.)

Silver also has a threshold that seems to mark a point of too much optimism. The magic number for silver seems to be the 60,000 mark.

When large speculators hit that level of optimism, that’s when prices become more volatile. The report from July 31 shows that large speculators are net long 27,308 contracts.

The red lines mark the times when the 60,000 mark was crossed and like we saw with gold it is the first week when the threshold is crossed that is marked. I also marked two weeks in 2016 with blue lines. In those instances the net long position reached 80,000 contracts.

My advice to gold investors is to watch the COT reports. If large speculators reach the 300,000 contract level on gold, consider taking some profits off the table.

For silver investors, it could be a two step process. Take partial profits when the 60,000 threshold is reached and more, if not all, when the 80,000 level is reached.

Why You Are Not Rich: Financial Misconceptions That Hurt Your Bottom Line

Personal finance is rife with misconceptions, myths, and bad advice. For many, bad advice is why you are not rich. Following the wrong advice and making bad investment decisions can

Pesticide in Milk May Be a Risk Factor for Parkinson’s

Research published in Neurology analyzed the effects of heptachlor epoxide — a pesticide commonly used in milk until the 1980s — in association with the signs and symptoms of Parkinson’s.

5 Ways to Survive and Thrive On Social Security Alone

Getting older can be a very expensive in the United States. Unless you begin saving for retirement at a young age, life can get progressively expensive as you get older.

Scientists Say This Food May Help Colon Cancer

It turns out that eating a handful of nuts daily could effectively keep colon cancer from recurring after surgery. In fact, research, from Dana-Farber Cancer Institute in Boston, suggests that

Have More in Retirement by Being Tax-Smart

Many people start planning for retirement by focusing on one primary objective: saving enough money to retire comfortably when they are ready. Taxes are something that no one enjoys paying;

Just Retired? Look at These 7 Key Financial Moves

Are you all set to bid adieu to your full-time job in 2019? If you are just retired, there are a number of things you need to do to make

3 Plant Remedies For Anxiety

An anxiety disorder can range from social anxiety to outright panic attacks. Doctors will generally prescribe medications that work on the central nervous system — like lorazepam. They may also

6 Ways to Live Within Your Means

Living within your means is undoubtedly the most important step you can take to structure your life, achieve your financial goals, and secure your future. While living it might not

7 Reasons to Stop Using Soap

The beneficial reasons for using soap may be diminishing in the sense that commercial soap is produced with so many chemicals that it could cause more harm than good. Due

Add Cinnamon To This Every Morning

For those who love to regularly kick start their morning cup of coffee with cinnamon, you're in for some good news. And for those who don’t, here’s something to consider.

5 Simple Ways to Earn Quick Cash

If there is one thing we could all use in today’s tumultuous economic environment, it is free money. While no one will pay you for doing absolutely nothing, there are

5 Items You Should Never Pay for at a Car Dealership

The typical American may more than a couple of cars within one lifetime. However, car salespeople sell cars every day and use that experience for their financial gain. When you