Retail Traders Increase Bearish Bets, a Bullish Sign?

Gold, Silver, Retail Trader Positioning, Technical Analysis – IGCS Commodities Update

  • Gold and silver prices have been consolidating in recent days
  • Retail traders are increasing short exposure, a bullish sign?
  • Technical posture remains intact as key support levels hold

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In recent weeks, gold and silver prices have been struggling to find the momentum to resume the broader upside trajectory since bottoming last year. From a technical standpoint, while some bearish signals have emerged, the broader upside focus remains. But, from a positioning standpoint, perhaps there is continued support for upside progress.

This can be seen by looking at IG Client Sentiment (IGCS), which tends to be a contrarian indicator, especially in trending markets. In recent days, it seems retail traders have been increasing their downside exposure in gold and silver. Is this a sign that further gains might be in store?

Gold Sentiment Outlook – Bullish

The IGCS gauge shows that about 58% of retail traders are net-long gold. Since most of them are biased to the upside, this hints that prices may fall down the road. But downside exposure increased by 11.66% and 10.04% compared to yesterday and last week, respectively. With that in mind, recent changes in exposure hint that prices may soon resume higher.

Gold Sentiment Outlook - Bullish

XAU/USD Daily Chart

On the daily chart, gold broke under the 20-day Simple Moving Average (SMA). This followed the emergence of a Bearish Engulfing candlestick pattern, increasingly opening the door to extending downside progress. But, confirmation of the 20-day SMA breakout is lacking after the midpoint of the Fibonacci extension at 1977 held. This is maintaining the near-term upside bias. Extending lower exposes the 100-day SMA.

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XAU/USD Daily Chart

Chart Created in Trading View

Silver Sentiment Outlook – Bullish

The IGCS gauge reveals that 51% of retail traders are net-long silver. Since traders are net-long, this hints price may keep falling. But, net-short exposure has increased by 7.87% and 171.66% compared to yesterday and last week, respectively. With that in mind, recent changes in exposure warn that the current price trend may soon reverse higher.

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Silver Sentiment Outlook - Bullish

XAG/USD Daily Chart

Silver prices also face the downside risk of a Bearish Engulfing candlestick pattern. But, unlike gold, XAG/USD has been unable to break under the 20-day SMA, leaving the precious metal in better technical standing than XAU/USD. Turning higher places the focus on April 2022 highs (25.85 – 26.21). Otherwise, falling under the SMA exposes the 50-day equivalent for key support.

XAG/USD Daily Chart

Chart Created in Trading View

— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

To contact Daniel, follow him on Twitter:@ddubrovskyFX



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