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Forecasting precious metal price movements using trader positions

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  • Mutafoglu, Takvor H.
  • Tokat, Ekin
  • Tokat, Hakki A.
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    Abstract

    In the early 2000s, the precious metal markets entered into a new phase where a steady rise of prices had been observed until the October 2008 crash. Given the size and importance of precious metal market, as well as the hedging capacity of precious metals due to their low correlation with equity markets (Draper et al., 2006), the question we want to arise is whether trader positions predict the direction of gold, platinum, and silver spot price movements. The forecasting content of the Commodity Futures Trading Commission’s Commitment of Traders report for platinum, silver and gold prices using trader positions is investigated in a VAR framework. Granger causality tests are conducted to determine whether a relation between trader positions and market prices exists. An examination of the extreme trader positions on price movements is also conducted. The results indicate that market return is a significant parameter in explaining trader’s positions for all trader types in each of the precious metal markets under consideration after the beginning of 2000s where we detect a structural break for each of the market under study. Commercial traders are found to be negative feedback traders, that is, they sell when the prices increase in the market. On the other hand, in line with the previous literature, a positive correlation between returns and positions held by non-commercial and non-reporting traders is found. However, trader’s net positions do not lead market returns in general. There is some evidence on the forecasting ability of extreme trader positions on market returns.

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    Bibliographic Info

    Article provided by Elsevier in its journal Resources Policy.

    Volume (Year): 37 (2012)
    Issue (Month): 3 ()
    Pages: 273-280

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    Handle: RePEc:eee:jrpoli:v:37:y:2012:i:3:p:273-280

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    Web page: http://www.elsevier.com/locate/inca/30467

    Related research

    Keywords: Commitment of Traders; Precious metal futures markets; Granger causality;

    References

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    Cited by:
    1. Adam Clements & Neda Todorova, 2014. "The impact of information flow and trading activity on gold and oil futures volatility," NCER Working Paper Series 102, National Centre for Econometric Research.
    2. Sensoy, Ahmet, 2013. "Dynamic relationship between precious metals," Resources Policy, Elsevier, vol. 38(4), pages 504-511.

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