Most MoneyWeek readers will be aware by now of the fundamental reasons for owning gold and silver (if not, take a look at my cover story from last year). Today I'd like to take a purely technical look at the monetary metals. I think we are set for a decent run here. We'll start with the Commitment of Traders (COT) Report. One of the more reliable indicators for the short- to medium-term direction of gold and silver, and indeed any commodity, is to see what position traders are taking on Commodities Futures Exchange (the world's largest exchange) in New York. Traders are divided into three categories: commercials, large traders and small speculators. The simplified wisdom is that the large traders are the ones who get it wrong, while the commercial traders are the ones who get it right. The commercials are often hedging miners' future gold production, and will often be short (betting the market will fall), while the large traders tend to be on the long side (betting the market will rise). The trading strategy is as follows: the more open interest – i.e. open positions – the more likely it is we are near a top; the less open interest, the more likely it is we are near a bottom. The more the large traders are long, the more likely the top, the less the commercials are short, the more likely the bottom. Below is a weekly chart of gold for the last five years with, underneath, the positions taken by traders on the Comex. You can see that at the moment, the commercials have dramatically cut their short positions and the large traders their long positions to levels where significant market bottoms have previously taken place. The arrows I've drawn show previous bottoms and the corresponding positions of the traders.

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