Precious metals: purge on COMEX and retail investors stand firm
Following steep recent falls in gold and silver prices, the market has gone through what can be described as a “purge” of speculative positioning on derivatives markets – particularly on COMEX. The drop in prices has effectively wiped out the high level of speculative net positions that had previously shown extreme greed.
Market Analyst
Despite this sell-off, interest in precious metals remains high. Sentiment indicators and search interest worldwide for terms like “gold” and “silver” continue to reflect strong engagement. Volatility has been extraordinary – at times gold’s volatility has even exceeded that of Bitcoin, and silver came close to a 50% drop in just six sessions.
Retail investors maintain conviction
Even in the face of extreme market swings, retail investors have not capitulated. In fact, they appear to be holding – and even increasing – their positioning. According to World Gold Council data:
Flows into physical gold ETFs reached $19 billion in January, and total holdings in these ETFs climbed to 4,145 tonnes – both historic highs.
This trend of strong inflows into physically backed ETFs also extends to silver – for example, in the largest silver ETF (SLV).
Forced liquidation of derivative positions
One immediate consequence of the extreme volatility has been the increase in margin requirements by clearing houses on derivatives markets – including COMEX – which has helped cool speculative leverage. As a result, open interest on COMEX precious metals – gold, silver, platinum and palladium – has been reduced by roughly 15.25% in the past week, based on data from the Commodity Futures Trading Commission (CFTC).
Directional positioning could flip if prices gain momentum
When looking at futures and options positioning (also from the CFTC reports), trend-following or directional traders (“Managed Money”) have been closing long positions more aggressively. This has pushed their net positioning to its lowest level in about a year. If prices regain upward momentum, these trend followers may have room to rebuild long positions, which could drive prices higher.
Historic crash in gold and silver: bubble burst or opportunity to re-enter a bull market?
Precious metals have suffered a sharp sell-off. The key question now is whether this represents a market peak or a correction within a broader bullish trend. Movements in the US dollar and upcoming macroeconomic data will be critical in determining how far the pullback extends.
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