Connected interests (commercial traders) have not only covered their short position but also increased their long positions dramatically since early August. Commercial traders’ longs positions as a percentage of open interest has increases from 29.8% to 35.2% over the past six weeks. This trend and reading, second highest of 2011, set a bullish tone for gold despite growing fears induced by the recent technical consolidation.
Commerical traders’ highest long allocation for 2011 has been 35.5%. This reading, registered on 5/17 when gold was trading at $1478.50, preceded a sharp rally. It’s also important to note that the level of short-side participation is much smaller today than 5/17. In other words, today’s bullish setup has the potential to be far-more explosive.