In New York huge lots of commodities get traded every day on the COMEX (Commodity Exchange) between market makers, speculators, producers and consumers.
It can be very confusing – because we can’t know why banker X, trader Y, consumer Z or producer A buys, sells or holds at any given time. There’s lots of noise – and most investors simply will never buy or sell a commodity contract.
It’s somewhat complicated, but one easy way to get a reading on what’s really going on for a specific commodity is to see how many contracts are long, and how many are short.
The chart below shows us that right now, on a net basis, there are more contracts short than at any time during the last two years.
How is this information useful? Well, think of the commodity market (or any market) as a boat. When everyone stands on one side of the boat, it’s generally a good idea to stand on the other side.
Put another way: when would you rather buy – when everyone else is bullish and buying, or when everyone else is bearish and selling? (more)
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