Saturday, August 17, 2013

Crude Oil, Gold, Silver & Copper (Commitment of Traders) 8-18-13

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The geopolitical upheaval in the Middle East has levied crude oil prices back up to nearly $108 a barrel, and gold prices above $1,373 an ounce.  Fear is a key component of higher oil prices. With Egyptian protests ramping up in intensity, traders' fears that the oil markets could be affected have driven the price of oil. Latest News

Rising oil prices: Is it really all about Egypt? Read

Economic questions of stability in the Middle East have also sent investors back to the relative safety of gold. But these two commodities have a relationship - and one that investors might be able to exploit, if they know what tools to use.

What this ratio infers is that when the current ratio is below 15.5, gold is either too cheap, or oil is too expensive. When the ratio is greater than 15.5, oil is either too cheap or gold is too expensive, as noted in this chart below.

With the ratio at just about 12.75, fundamentals are more important for direction in each commodity, and I'm thinking that if oil supply is not disrupted by the uprisings in Egypt/Suez Canal, then we could likely see prices fall back below $100 a barrel. ITZ is targeting $94.

ITZ takes a look at several weekly metal COT Commitment of Traders Report charts & Crude Oil this weekend.

The COT report is a great analytical tool for traders in any market because it provides up to date information about the trend and the strength of the commitment traders have towards that trend in each of the commodities markets. The COT report essentially shows the net long or short positions for each available futures contract for three different types of traders. If traders are overwhelmingly long or increasing their long positions then we will have a bullish bias on that market. Similarly, if traders are short or increasing their short positions then we will have a bearish bias.

ITZ follows the Commercial Hedgers - Commonly believed to be the "smart money", these traders are involved in the day-to-day operations of each commodity. They have an excellent handle on the underlying market, and it typically pays to follow their positions when they reach an extreme.

Large Speculators - This group mostly consists of large hedge funds, and almost always take the opposite side of commercial traders. The are primarily trend-followers, and will accumulate positions as a trend progresses. When their positions reach an extreme, watch for a price reversal in the opposite direction of the existing trend.

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