Swap dealers are currently net short gold by an amount equal to 58.2% of total open interest.
(Swap dealers are primarily large banks and other dealer institutions.)
Based on the three-year COT Index, their current positioning sits around the 12th percentile of the past 156 reports.
In other words, there have been relatively few weeks over the past three years when their positioning in gold was even more bearish than it is today.
COT is not a tool that tells you what gold will do next week. Extreme positioning can persist for a long time, and in a strong trend it can become even more stretched.
But it does show just how one-sided part of the market has become.
The more extreme the positioning gets, the more interesting the question becomes: what happens if capital flows begin to reverse?
There does not need to be any dramatic short squeeze. If part of these positions starts to unwind, or if strong demand for gold continues on the other side of the trade, the market structure can change fairly quickly.
What I find most interesting is the combination of a high gold price and, at the same time, very heavy short positioning from swap dealers.
Gold is no longer in an environment where a large short position automatically means the trend has to end.
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