Precious Metals Rally at Risk as Commercial Hedgers Take Massive Net-Short Positions

Commercial hedgers have taken on massive net-short positions in precious metals, raising concerns that the current rally may be nearing its end. According to Commitments of Traders data, commercial traders in gold, silver, and copper are heavily short, signaling potential market cooling. This unusual configuration is similar to what was seen in 2018 when silver prices were around $14-$15 an ounce, with average mining costs estimated at about $17.

At that time, a shift to net-long positioning by commercials coincided with a major low, and similar episodes were also observed near lows in 2019 and 2022. Gold also registered a bullish COT setup around the 2018 low, but the silver signal was rarer due to gold commercials being net long at other points.

The broader composite gauge, COTbase, is currently in bearish territory with a larger-than-average bearish extreme, while copper is described as being at an all-time COT extreme. This condition can persist for weeks or even months before price responds, cautioning derivative traders to exercise extreme caution over the coming weeks.