Every week, the CFTC (Commodity Futures Trading Commission) publishes a report called the COT (Commitment of Traders). It shows how many gold futures contracts large traders — like hedge funds — are betting on: will gold go up (longs) or down (shorts)?
Net Longs = Longs minus Shorts. A high number means speculators are very bullish on gold. But when everyone is already bullish, who is left to buy? That's the risk.
How does it affect gold?
→ Rule: COT Net Longs's relationship with gold is mixed (see explanation)
COT Net Longs is a momentum AND a contrarian indicator at the same time.
Rising net longs = hedge funds are buying gold = typically good for prices in the short term.
But when net longs reach very high levels, it's a warning: if too many people are already long, there aren't many new buyers left. A small piece of bad news can trigger a rush to the exit, causing a sharp gold sell-off.