Loading ...Madmax : Re Smart Money : Dumb Money
OK…I have a pet peeve
I hear this all the time from COTs readers
The Commercials are the Smart money and they ALWAYS win
The Hedge Funds (Speculators) are the Dumb money and they ALWAYS Lose
This is not right …it is pure bunk as a matter of fact
When the price of Gold is rising almost invariably the Open Interest on the Comex is rising
It is the Specs (who are ALWAYS net Long) who drive the open interest
Specs BUY…who do they buy from…someone has to sell…Commercials Sell…that’s why they are commercials
( Miners / Bullion Banks etc…that’s what they do…they sell gold)
Specs buy and get longer and open interest rises and the price rises
Eventually the price stops going up and Spec start to liquidate and the price and open interest drop as the commercial buy back their shorts and positions are closed
The Specs drive the market by sheer numbers
OI peaked in 2011 and was dropping on balance thru the bear…now it is picking up
IF it were true the commercials always win and Hedge funds always lose because they are Dumb…There wouldn’t be any more hedge funds
There is NO market if one group always wins…it just aint so …..here is a chart produced by Schism at the Chartology Forum
LOOK how the Commercials got crushed all thru the parabolic run up in 2010 2011
They had huge sorts all the way up !
The Longs (Specs)…. won heavily !
Now you say since 2011 the Commercials have been on the right side all the time…not so sure but even if so
IF this is a Bull market the rules have changed back and favor the Specs
Truth is The Commercials don’t always loose either …because they hedge their shorts by being long in other markets ( and some of them are producers who have the gold to sell)
My point is …its NOT as simple as Commercials always win !!
Well prior to 2011 algos they used didn’t work as well. As you see since this glitch was fixed it’s different now.
Please look at the chart and see who wins for last 4 years.
Large specs vs Commercials
https://www.tradingview.com/chart/GC1!/M1kUi1jK-Gold-s-COT-remain-in-bearish-mode/
YOU look at the chart….with fresh eyes please
Its simple
When the Price is going UP the Longs are making Money and the Shorts are loosing
The Specs are ALWAYS net long
so from 1050 to 1280 the Commercials who are always net short lost money on their Futures
A LOT of money ….but many of course are miners so they made money as they own the gold for the purpose of selling it
Others were perhaps hedged with GLD longs….so its not as simple as that
Again when the price RISES the Commercials who are always SHORT lose money on their Futures positions
When the price drops the Specs (Hedge Funds) always lose money
Since 2011 it has been a bear market so net net the Specs are losing
Not all of them mind you….some are short too….but we are talking netnet
Example
A Commercial house sells 1000 Contracts at 1100 as gold rises to 1280 has lost $180 x 100 ounces per contract
Yes then the buy back as the price is falling and “cover”…but do they MAKE money after closing the position if they buy back at $1200,,,,no they lose 100 X $100 $10,000 per contract !
Simplify this all Max
Price goes up Hedge Funds win all the time ( they are always LONG)
Price Goes Down Commercials win ( they are always SHORT)