The latest COT report after US partial government shutdown shows that gold speculators have reduced their bullish bets for the first time in six weeks. If we look before, the net speculative position had risen for five straight weeks before the January pullback.

We can see from the chart that net large speculators have come off after 6 weeks taking long positions. Since December, gold has moved till $80. So, money managers (net large speculators) have increased their long positions, but now it is getting reversed. What is surprising is the speed at which positions of commercials are adding shorts.

Here in the chart, we can see how slowly money managers have added longs and how fast commercials have built up shorts.

Now, if we look at swaps which are banks, they have added short positions at a record pace. In fact, since December 18 when gold moved from $1,281 to $1,330 in six weeks, swaps have added to their net short positions at the second fastest pace on a three week basis.

Banks also have increased their short positions to the highest levels since September 2017. Gold at that point was at $1,363. So clearly, banks are expecting gold to retrace and that is why they have created such large short positions.

This does not augur well for gold, at least in the short term. Gold has fallen to $1,314 from $1,332 but there is room for more correction looking at the short positions created by smart investors and banks.

Daily sentiment Index which sometimes gives early indication hit a peak of 80 per cent bullishness on January 31, which signals a peak in price. Considering the COT data, gold may see some more downside from here as smart investors and banks are not convinced in gold’s rally.