A Golden Opportunity?

07 Jul 2022

By Eric Lee, Sales Director, Phillip Nova

In my recent post about Silver, I had explained on how we can make use of the data provided by Commitment of Traders (COT) report to have an understanding on the supply and demand on commodities that are traded on futures exchanges.

We can see another similar opportunity for Comex Gold. To illustrate how we can do so, I will be diving a little deeper using the COT reports on commercial traders’ activities and Open Interest indicator to look for markets that are favorable for a short to medium upward move.

You may refer to my post on Silver for a simple explanation about COT report: Looking for a Silver Lining.

CME Group has a very good explanation and simple example about Open Interest. I would suggest that you take some time to read it: https://www.cmegroup.com/education/courses/introduction-to-futures/open-interest.html

This sentence is perhaps the best summary on the concept of Open Interest and gives us an idea on how to use this data for trade generation. When Open Interest is low, it likely meant that there is very low market participation in the product, due to lack of direction or lack of interest. This is also one of the main differences between Commercials and Speculators. Commercials buy and sell a commodity because of their day-to-day business operations. Thus, their actions depict the real economic supply and demand of the commodity.

How do we use COT Commercials and Open Interest to look for market set up for a potential up-move?

For COT Commercial, one technique is to measure its half-yearly relative strength. If Commercials reported higher number than 6 months ago, then it meant that over the past 6 months, they had been buying more than selling Gold. As such, we can deem that there is a stronger demand for the asset. Technically, we want to wait for a peak to form. As can be seen from the chart above, gold price had rallied after the Commercials peak showed relative strength.
Open Interest (OI) works more like a contrarian indicator. As OI falls below 500k, it generally meant lack of interest in the asset. This is the time to start looking for buying opportunities. As market interest starts drumming up again, those traders who had shun gold will start coming back again, driving up demand for the commodity and possibly pushing the price higher along the way.

As can be seen from the chart above, Gold’s COT report is currently showing its Commercial data as trading in 3 years’ high. Open Interest is below 500k. Next, we can watch out for COT weekly report every Friday for a peak in Commercials. Then, traders can switch to a daily chart to look for entry signal based on technical analysis.

How to trade/invest in gold?

In Phillip Nova, we have the platforms and products available for you to trade in gold. The gold instruments you can look into are:

– Comex Gold Futures available on Phillip Nova platform

– Spot Gold available on MT5 platform

These are available in our demo accounts as well, click on the link below to register for demo trading account with us where I am pleased to be in touched with you.

Value-Added Service

Periodically, I will be sending out market analysis like this to my clients, as well as alerting them when the trading strategies I used indicated potential entry and exit signals. Click on the button at the bottom if you would like to arrange for a One-to-One Coaching session to learn more about trading futures & forex, and how you may benefit from the services I provide.

Eric Lee is a Sales Director with Phillip Nova. With expertise in Futures, Forex, Stocks, and Unit Trust, Eric makes an all-rounded advisor. Make informed trading decisions without spending time combing through endless information as Eric readily provides clients with trade alerts and insights via WhatsApp. Over his years of experience, Eric developed systematic strategies in trading and investing. Book a complimentary coaching session below to leverage on his expertise as he imparts his knowledge to enhance your trading journey.

Click here for a free coaching session with Eric

An Exchange Traded Fund (ETF) is a marketable security that is formed to track nearly anything, ranging from a specific index, sector, commodity, or increasingly, theme. They are most commonly used to track a basket of stocks, and can typically be accessed through the same channels as regular stocks. ETFs are typically separated into passively-managed ETFs that simply mirror the security they are tracking (e.g. the STI), and actively managed ones that attempt to deliver higher returns or specific investment objectives, often with a pre-specified theme in mind (e.g. ARK Invest’s Innovation ETF).

Why should I trade in ETF CFDs?

ETFs have been growing in popularity over the years. 2020 was the best year for ETFs yet, with global equity ETFs seeing more than $1T in inflows within a 12-month period. Using CFDs to gain exposure to ETFs allows for greater capital efficiency because only a portion of the contract value is required as margin to establish a position.
ETFs are particularly popular with investors seeking a relatively hassle-free investing experience, while desiring exposure to a range of specific and relatively understandable securities. Trading ETF CFDs brings greater convenience by eliminating the need for traders to hold multiple currencies in order to access global ETFs.
An investor wanting exposure to the post-pandemic economic recovery could open a position in the well-known SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500. Another investor that may be convinced of the future importance of Environmental, Social and Governance concerns (ESG) may find the increasing selection of ESG-themed ETFs that track a basket of high ESG-rating companies to be a good investment, rather than cherry-picking individual equities by hand. ETF CFDs can act as a powerful tool for traders can profit from both directions of the market by taking on long or short positions.

A look at two ETF CFDs we offer:

1) Has the ARKK been sunk?

ARK Innovation ETF (ARKK) ARKK is an actively managed ETF by ARK Invest that invests in a range of companies based on their innovative and industry-disrupting potential. ARKK’s largest holdings are in companies such as Tesla, Square, and Zoom. ARKK is down around -33% from peaking on 12^th Feb and is currently in the red for the year to date as the market experiences a risk-off outflow of funds. Superstar fund manager Cathie Wood has however been consistently doubling down on her bets, buying even more shares in growth stocks that are going through their own tumultuous periods such as DraftKings, Peloton, Teladoc, and Tesla. In her view, ARKK is playing the long game, and remains steadfastly convinced in the long-term prospects of these growth stocks beyond this current bout of volatility. Similarly on outflows, investors are still betting big on ARKK as ARK Invest has only lost about $1.2B in assets this year across all its six funds, compared to seeing an inflow of $15.1B during the same period. Recently, investors have been nervously eyeing ARKK’s basket of tech stocks as their future earnings potential remain vulnerable to erosion through high inflation – the dominant concern of the market in recent weeks. As commodities – the major contributor to the recent heightened inflation fears – drops sharply from record highs, are investor concerns over hyperinflation overblown?

2) Searching for exposure to Asian equities?

iShares MSCI Asia ex Japan ETF (AAXJ) The AAXJ is currently trading -10.6% adrift of all-time highs seen in February, giving up gains in tandem with an Asia-wide equity sell-off at the time. Given that slightly over 40% of the ETF’s holdings are based in China, the ongoing tumult seen in Chinese equities currently have carried over nearly perfectly in the AAXJ, as Chinese investors take a breather after the stellar gains made over the past year. Looking ahead, Asia – and particularly China, is steaming ahead with its economic recovery. China is widely expected to be one of the best-performing major economies this year, providing a major boost to the outlook for corporate earnings. As the rest of Asia and the world gradually opens up their own economies, AAXJ is likely to again benefit from strong Asian outperformance amidst a strengthening trade outlook.

CFD is available for trading on Phillip MetaTrader 5 (MT5).

Features of trading CFD:

Trade in both the bull and the bear markets
The ability to enter a long and/or short position allow traders to take advantage of both rising and falling markets.
Smaller barrier to entry
Flexible and smaller contract sizes. This means that traders will be able to enter into a contract with a modest amount of capital.
No expiration date or risk of delivery
Unlike futures which commonly have a fixed expiration date, CFD allows traders to perpetually hold the position(s). CFD is cash settled, no need to worry about the delivery of the underlying asset.

Benefits of using Phillip MT5:

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