However, there is another group of investors included in the COT report. This group comprises the so-called small speculators, i.e. the players that do not fall into commercials / big speculators category.
Basically, these small players are always wrong about the market. Therefore it makes sense to take the opposite position to that held by small speculators.
Let me show it, taking the silver and gold market as the examples:
The charts show that the current net positions, held by small speculators, are not indicative of a bullish frenzy. For example, despite the highest open interest in history, the net position (long), held by small speculators in silver futures contracts, is relatively low. This position, measured as a ratio:
net position held by small speculators / open interest
stands at a mere 6.1%. During a bullish frenzy, these speculators used to held long positions amounting to 23%.
The gold market looks similarly. Here the small speculators held long positions in gold futures contracts amounting to 4% (14% during a bullish frenzy).
Summing up, these days the small speculators are not over-optimistic on gold and silver. Quite contrary, they are quite far away from that point, which is a bullish sign for precious metals (or, using different wording, it is not a bearish pattern).