Open interest (futures & options) watch for gold silver

[swissaustrian]

This thread is dedicated to open interest (OI) in futures & options for gold and silver. The data is updated weekly by our "friends" at the CFTC.
Extremes (highs & lows) in open interest are useful to identify major lows and speculative manias in pms.

The data can be found here:

Gold
http://www.cftc.gov/oce/web/gold.htm

Commercial OI data for gold indicates massive hedging since the 2008 bottom and a quite impressive short covering during Q4 of 2011. You can also see that the largest commercial short position occured pretty simultaneously with the all time high of gold in September 2011.
I wonder if the massive increase in gold shorts since 2008 also has to do with the construction of GLD (and therefore isn't exactly "commercial hedging")? I've read about this a while ago. It seems like there's a short equivalent for every GLD share (I lack the time to search for an article now).

Non-commercial OI did not increase this much after 2008. There's also still some space until we reach speculative long levels again:

----------------------------------------------------------------

Silver
http://www.cftc.gov/oce/web/silver.htm

As you can see, it looks like we've had a major low in silver at the beginning of 2012. Commercial OI was nearly at 2008 panic lows:

Non-commercials have massively left the market after the crash in May 2011. That's great, because it
a) gives us upside potential if speculative "weak" hands enter the market again
b) limits downside potential, because there's less leverage in the market.

-------------------------------------------

Besides this:
One can also observe the stagnating (gold) / declining (silver) OI for the non-commercials during the last five years (since 2006) which means that speculators have NOT overtaken the futures and options markets. It's the commericials who are creating the volatility! In fact, that seems to confirm that only PHYSICAL demand is growing - besides the sheeple who are buying GLD and SLV.

 

[pmbug]

Nice. I used to read Harvey Organ's blog every day to keep up with this stuff. I started slacking off when I started doubting how the reports/system really has any bearing on reality. The silver doctors also do pretty good work highlighting bizarre discrepancies/movements in the COMEX reports. I haven't really been paying attention to the reports lately, so your post here is a welcome kick in the pants. Information, even if flawed, manipulated or deliberately misleading, empowers understanding.

 

[KMS]

Hey, SA. Thanks for posts like this.

 

[swissaustrian]

Nice. I used to read Harvey Organ's blog every day to keep up with this stuff. I started slacking off when I started doubting how the reports/system really has any bearing on reality. The silver doctors also do pretty good work highlighting bizarre discrepancies/movements in the COMEX reports. I haven't really been paying attention to the reports lately, so your post here is a welcome kick in the pants. Information, even if flawed, manipulated or deliberately misleading, empowers understanding.

I think the threads you're linking to deal with a different subject
They're about phyiscal inventory fraud, the numbers I'm talking about here in this thread only show the level of paper contracts (futures & options) at a certain point of time, the so called open interest ( http://en.wikipedia.org/wiki/Open_interest ) . All by themselves they don't give a hint about the level warehouse inventories. The paper (futures & options) to physical (warehouse inventory) ratios are fluctuating over time. So the COMEX isn't only a fractional reserve exchange, it's a partially backed exchange with fluctuating reserve ratios

Interactive charts about COMEX physical (registered) warehouse inventory can be found here:

Gold

Interactive:

http://www.24hgold.com/english/inte...e=COMEX WAREHOUSES REGISTERED&etfcodecom=GOLD


Silver (pretty impressive )

Interactive:

http://www.24hgold.com/english/inte...COMEX WAREHOUSES REGISTERED&etfcodecom=SILVER

Maybe you know how to embed the interactive charts here, I don't.

 

[swissaustrian]

John Embry of Sprott AM is worried of an imminent raid in silver, because of the level of open interest:

When asked about silver specifically, Embry responded, “Silver is a more volatile version of gold, and once we get through this agony, silver will explode to the upside. It is worth noting that some people, looking at this amazing blowout in open interest, are very concerned there will be a raid in silver once again.
There could be an attempt to knock the price into the mid 20s before the next leg higher begins. That’s entirely possible. When you are dealing in a market that is this manipulated on the paper side, anything is possible. If that were to happen, it would be an even greater buying opportunity. I’m always nervous when I see massive blowouts in open interest because generally they are setting the market up to take it to the cleaners.”

 

[swissaustrian]

Looking at the charts in the op:

Gold looks pretty bombed out, both on the commercial side (relatively small short position) as well as on the non-commercial side (very small long position and very low spread). These are indicators for a bottom.

Silver commercials haven't reduced their short positions as much as they did in December 2011, but their open interest is still relatively low.
Non-commercial open interest has basicly dropped to all time (late 2008 and late 2011) lows. Speculators have left the paper market. If some enter again, we might get some support for a silver rally.

 

[DCFusor]

http://www.zerohedge.com/news/funds-cut-positions-gold-4-and-silver-20-gold-positions-3-year-low

 

[ancona]

So.......as soon as they talk silver/gold down enough to crash out the price, the shorts buy and cover. This is their playbook and they are not going to change it.

 

[swissaustrian]

cftc - managed money short positioning high for gold, silver
•could be 100 octane rally fuel for precious metals.
southeast texas – taking a break from the grueling, demanding and intense quest for things with fins and scales for a half day* today, we thought we would share with everyone a couple of the more interesting charts which surfaced in the latest commodity futures trading commission (cftc) commitments of traders report (cot). the report was released friday, may 18, with data as of tuesday, may 15.
according to the cftc, as of tuesday of last week, large traders the cftc classes as managed money (“mms,” hedge funds, commodity trading advisors and other funds that trade futures on behalf of others), increased their short positions in gold futures by 9,837 contracts to show 32,822 contracts short. That is the highest pure short position for the “funds” since september 16, 2008, during the height of the 2008 panic with gold then in the $770s. One week later, on september 23, gold closed at $891.90, about $122 higher as the mms covered or offset more than 20,000 of those short positions (not a misprint).

source for all graphs cftc for cot data, cash market for gold and silver.

very high pure short positions for the usually net long managed money traders very often correspond with important turning lows for gold. To confirm that notion simply look at the graph above and note that the spikes to the upside for the blue line (short positions) often correspond closely with bottoms in the pink price of gold.

the graph above is in part why we say that large mm short positions are “100-octane rally fuel” for the price of gold. the typically long side of the battlefield likely uses short positions to temporarily “hedge” existing long positions they do not wish to close. Their short positions are just like any other shorts, they have to be covered (bought back) at some point prior to expiry. Higher short positions are “buying pressure in a bottle” more or less.
remember that the positioning above was on tuesday with gold then trading in the $1,540s. Gold has indeed advanced since then and is currently trading in the $1,590 region as we write on monday, may 21, 2012.
that high short position is in part why the managed money no-spread net position shows the lowest net long positioning (80,098 contracts) since december 16 of 2008 (73,332 contracts net long then with $858 gold). On tuesday managed money traders were the least net long gold futures since the global panic of 2008 in other words.

so, to conclude this brief look at the managed money gold futures positioning, it’s pretty clear that “the funds” decided to “hedge” their long trades by adding shorts up to last tuesday. with gold moving back to the upside, we can expect with little doubt, that the mm’s pure short positioning will be considerably lower and their net long positioning will therefore be higher in the next cot report. the only question is by how much. That is, of course, unless gold does something weird by the close tomorrow, tuesday, the cutoff for the next cot report.

similar story for silver
turning to an interesting graph for silver futures, take a close look at the graph below and, given what we just shared about gold futures, answer the question: What does this high pure short positioning by the usually net long “funds” mean?

well, what it usually means is that silver is getting close to a bottom if history is any guide. to quantify the chart above, managed money reported an increase of about 3,700 new contracts short over the past two reporting weeks, to show a relatively high 12,518 lots short, with 3,334 contracts of that increase coming in the may 8 reporting week with silver then closing at $29.43.

that is actually the highest pure short positioning for the “funds” since the september 16, 2008 report (arrow), when they showed 13,171 short contracts with silver then at $10.48. one week later, on september 23 silver closed at $13.26, but the funds only covered 1,538 of those short contracts. That was an ill omen that the funds did not cover more of that short position then and indeed silver was not yet done with its waterfall panic, rush to liquidity plunge. By late october silver was back under $10 and did not forge a sure-enough bottom until the beginning of december, 2008. Interestingly, by the time silver did indeed make its seminal turning low in december, the mms had pared their pure short positions down to just 5,384 lots on december 9. )

the high short position for managed money traders is in part the reason that their collective net long futures positioning was so low in this may 15 report. As shown in the chart below traders the cftc classes as managed money reported holding a combined net long position of just 5,703 lots – not very much higher than the 4,752 contacts net long they reported at the end of 2011 in the december 27 cot report with silver then at $28.67.

as should be clear from the chart above, when the combined net long position for managed money traders (blue line) reaches the lower limits of the chart it often corresponds with lows in the price of silver.

continued in the following post...

 

[swissaustrian]

Sure enough, since Tuesday silver briefly tested a $26 handle before catching a bit of a bounce. Silver is currently trading in the $28.30s as we write (a little above the May 15 cutoff of $27.69) and it will be extremely interesting to see if the “funds” have seen fit to begin covering some of those “temporary hedges,” and if so, how many of them.

Silver is testing “The Green” or the area we have been looking for support to show. We strongly suspect the MMs are covering some of their shorts, opportunistically, but we, like everyone else, will have to wait until the Friday release of the COT for confirmation of that notion.
Meanwhile, in a contrary sense, the COT data suggests that gold and silver are very close to a bottom, if one has not already been put in last week. In part because of the data shown above, yes, but also because of the positioning of the usual Big Hedgers, but that story will have to wait for another time. We have run out of “break time” and have to get back to our grueling, demanding and intense quest for things with fins and scales…
As we send this off to be posted we note that the AMEX Gold Bugs Index or HUI is up about 2.5% to the 405 level, and there has been little in the way of meaningful retreat for the precious metals on an up day for the Big Markets.
That just might be some continued short covering underway – into dips. If so, it ought to be visible in the next COT report and would be an unmistakable signal to traders and speculators who follow the COT data consistently.
Hold down the fort, help is on the way…
*We are between fishing events, but on relatively “low power” personally.

http://www.gotgoldreport.com/2012/05/cftc-managed-money-short-positioning-high-for-gold-silver-.html

 

[swissaustrian]

Gene Arensberg's take on LAST week's COT. The data he is analysing is from 5-25.
The following video might be very useful for those of you who want to understand the impact of paper markets on pm prices.

In retrospect, he was absolutely right about his asumtion of a bottom

 

[swissaustrian]

Managed money (mainly hedge funds) is even more short silver now than a few weeks ago, adding short squeeze fuel. They've always been wrong, so that's very positive news. The data is one week old.

Most Important Silver COT Chart for 2012

Mr. Arensberg wanted me to share with you-all the chart below, which he says is the “most important chart for the CFTC commitments of traders (COT) data for silver so far in 2012.” Gene already commented on the very bullish positioning in the Vulture subscriber charts over the weekend, but he wanted a visual representation of it available.

The chart is of the short positions by the traders the CFTC classes as “Managed Money,” including hedge funds, Commodity Trading Advisors (CTAs) and other funds that trade futures for clients. They are normally on the long side for silver futures, but over the past couple months they have been adding more and more short positions up to a new record high for the entire disaggregated COT report data going back to 2006.

Here is the chart:

Source: CFTC for COT, Cash Market for silver.

As of Tuesday, July 24, with silver at $26.93, Managed Money traders held the highest ever number of bets that silver would fall in price (17,575 short contracts).

Continued…
The high Fund short position is a big reason that the Managed Money net long position is so very low, at just 3,015 contracts. Their shorts offset a slightly higher number of longs. Here is that graph:

That is a very, very small net long position! And, if you believe like we do, a very low Managed Money net long position means there is a lot of buying horsepower sitting on “go” for when the Funds think a new rally is getting underway.

Mr. Arensberg is convinced that the Funds have built up that record high short position as a kind of insurance – a “just in case hedge” to protect them if silver broke down through the super-important long time technical support level of $26. (But silver did not break down through $26, did it.)

He believes that if silver were to move back higher, up through about $28.50 or maybe $29 or so, the Funds would be quick to buy back those short bets on silver – because it will have broken out of a bottom consolidation pattern.

What is more, once it is clear that the Funds have started closing out all those record high short bets, all the regular traders on the N.Y. COMEX will be trying to front run that short covering, sort of like switching on an afterburner. Then, when that is going on the other shorts might be trying to take profits, buying back their shorts all at the same time with the algo traders trying to jump on it for the ride.

“It could be an explosive move if that happens,” Gene said. “We could even see an offer vacuum for a little while, which we have not seen since January,” he added.

An offer vacuum is the opposite of a bid vacuum. They occur when many traders suddenly pull all their offers because the price is going vertical.

Gene isn’t predicting it as such, but he says it is definitely something to keep an eye out for and silver is not that far under where the fireworks ought to start, currently at about $28.

All I can say is … it’s about time for a silver reversal, isn’t it?

Colette Chapman for Got Gold Report

http://www.gotgoldreport.com/2012/0...-all-the-chart-below-which-he-says-is-th.html

 

[pmbug]

 

[swissaustrian]

Another great analysis of COT data and pm technicals by gotgoldreport's Gene Arensberg.
A must watch imho. Video was recorded on Sep 30th.

 

[swissaustrian]

Found these great long term charts on gold and silver COT data in relation to spot prices. Updates are lagging by three months, however.

Gold

Silver

 

[swissaustrian]

I've recently discovered that a German investor offers free COT data analysis for gold, silver, platinum, palladium and copper.
His work is in German, however the charts in his weekly reports should be largely self-explanatory. Here is the link, he publishes his reports saturdays/sundays on a weekly basis.
http://cotsignale.de/

Click the links which are named "Metall-Update per ..." (English: metals update for [date]). A pdf will open with charts and brief comments in German.

 

[ancona]

I'll bet a dollar I can spot each OPEX on those charts SA. ; - )

Those look like my Uncle Aaron's EKG when he had his four-pack-a-day heart attack years ago.

 

[pmbug]

Found these great long term charts on gold and silver COT data in relation to spot prices. ...

Seems to be a clear correlation on the gold chart. I'm not seeing it on the silver chart though.

 

[swissaustrian]

Tonight's COT data should be very interesting. It doesn't cover yesterday's opex but I guess that positions were already in place for opex on Tuesday.

The last week (Tuesday to Tuesday) probably flushed out a ton of speculative longs. The really interesting part is now whether commercials reduced their short positions significantly.

Add on to that that the CME just lowered gold margins by 9%, one day AFTER opex...
http://www.zerohedge.com/news/2012-12-28/cme-lowers-gold-margin-9

 

[swissaustrian]

HEAVY short covering by the commercials and the swap dealers as well as panic liquidation by speculative longs. Especially in silver, swap dealers reduced their net short position by 35% and managed money just capitulated by reducing 20% their net longs by 20%. Just as one would expect given the price action in pms. I like that very much. That's gonna make pm markets much healthier during the next week. Still, there's room for more of the same.

 

[swissaustrian]

I'm looking forward to next week's COT report which will cover this week's trading activity.
Todays report just covers Dec 24th-31st:

There's nothing special in it as this was thin holiday trading with closed exchanges on the 25th, 26th, 28th and 29th. It basicly just covers two trading days: the 27th and the 31st of December. Notable however is the fact that the activity in silver points to mild short covering on behalf of the commercials whilest nothing comparable happened in gold.

 

[swissaustrian]

Pretty interesting developments in the recent COT data:

There's a pretty notable diversion between positioning in gold and silver going on.

As you can see below, commercials have covered their shorts quite significantly in gold. Especially swap dealers reduced their net short position by nearly 40% in one week. Swap dealers are counterparties to trades that take the opposite of their positioning. Therefore it seems that there has been heavy accumulation of shorts in the over the counter market. At the same time speculators also reduced their net long gold positions quite a bit by 20%. Notice the similarity in the amounts of contracts between the swap dealers and the speculators in gold. Neither commercial net short positioning nor speculative net long positioning is at levels that would suggest an immediate bottom. But the significant reduction in open interest in a sidewards market is a good sign.

Now switching over to silver, the picture is completely different. Open interest has continued to rise. Commercials have increased their shorts by 6% and specs put on 10% more longs. It looks like a showdown between these groups is in the cards. Sadly, usually the shorts are winning these fights, ie silver might be up for a correction. Also note that the swap dealers haven't changed their net positioning in silver at all.

 

[ancona]

Can you help me understand this chart a bit more? I can't see what is a short/long or really anything because there are no labels that I recognize.....

 

[swissaustrian]

This chart shows the net positioning of various groups of investors in the futures markets for gold and silver at a specific date (the last two Tuesdays) as published by the CFTC each Friday.

"Producer / Merchant" + "Swap Dealers" = commercials
"Managed Money" = speculators

The numbers are net, i.e. longs minus shorts for each category. If the result is positive, they're net long. If it's negative, they're net short.

E.g. for gold
"Managed Money | 76,501 ..." means speculators are 76,501 contracts net long.
"Swap Dealers | (35,814) ..." means swap dealers (as part of the commercials, see above) are 35,814 contracts net short. The brackets have the same meaning as they would have in a balance sheet. They're indicating a liability, the short. A short is a liability, because it's an obligation to sell metal at a fixed date in the future.

 

[Jetstream]

Ed Steer thinks the increased short position in silver may be due to an error in reporting (not sure I agree with that, but who knows?). However he includes an interesting comment about Ted Butler's idea on why the significant increase in silver's short position. The pertinent part is this:

Ted's thinking on this is radically different. First of all, instead of covering short positions during the reporting week, JPMorgan added another 2,000 contracts to their already obscene and grotesque short position, which now sits at a bit more than 33,000 contracts. The small traders decreased their long positions and increased their short positions on that price decline...which is precisely what one would expect of them. But the big surprise was that the brain dead technical funds increased their long position by 3,711 contracts, instead of reducing it...which is NOT the action that one would normally expect on a week over week price decline. Ted is speculating that a surprise buyer shows up in the Non-Commercial category...and this forced JPMorgan et al to short massive amounts of the metal in order to prevent the price from blowing up.

I sure hope he's right...but I will be waiting to see if there is any corrections made to the silver portion of the COT Report as the week progresses.

 

[Unbeatable]

Don't know if it's important, don't understand comex that well -

http://harveyorgan.blogspot.co.uk/

In the delivery schedule for gold we lost some gold to the avarice of Blythe Masters but not much as 42.1 tonnes of gold still stands for delivery. You will recall previous months that after first day notice, the first few days we witnessed a considerable drop in gold ounces standing. Not this month!

Dave from Denver noted that in Shanghai a total of 31 tonnes of gold stood for delivery Thursday night.
If you add the comex gold to Shanghai delivery gold we have 73 tonnes of gold standing which represents almost 40% of annual gold production. It seems to me that the physical markets are truly on fire!

 

[pmbug]

...
Now switching over to silver, the picture is completely different. Open interest has continued to rise. Commercials have increased their shorts by 6% and specs put on 10% more longs. It looks like a showdown between these groups is in the cards. Sadly, usually the shorts are winning these fights, ie silver might be up for a correction. Also note that the swap dealers haven't changed their net positioning in silver at all.
...

Biased commentary is biased, but interesting food for thought:

...
The open interest in silver continues to amaze. We are just not seeing a clean out in the open interest in the silver market, even when the price is driven lower.

I believe we may be finally approaching a commercial signal failure where the shorts get overrun. This is a moment all of the silver bulls have waited for, and even though it hasn’t happened yet, I think we are setting up the pre-conditions for just such an event.”
...

http://kingworldnews.com/kingworldn...t_Is_Nearing_A_Commercial_Signal_Failure.html

Door #1:



Door #2:

 

[DSAbug]

This is EXACTLY my concern.. We've heard about this for soooo long. How long will it take to know how much is standing for delivery officially?

 

[swissaustrian]

No commercial signal failure this time. Bullion banks won again.
I'm looking forward to tonights COT report. It's not gonna cover todays raid, though. We'll have to wait until next Friday to the impact of that on the paper markets.

 

[swissaustrian]

The COT data as of Tuesday Feb 12th is out.
Note that gold was above 1650 and silver above 31 back then! The trends likely intensified significantly until today.

First gold: Managed money had already capitulated reducing net long positions by 15% while the commercials covered only 9% of their net short position. The bullion banks obviously knew that they should hold on to their shorts for a few more days The net long positioning of managed money at 66'582 contracts is actually lower lower than in last May in the depths of summer depression for pms: http://www.pmbug.com/forum/f13/open-interest-futures-options-watch-gold-silver-679/#post9099 The massive decrease in swap dealer net short positioning indicates that there has been a lot of hedging going on in the over the counter market: Swap dealers are taking the opposite side of the trades of their counterparties. If they're reducing their net short postioning it means that they sold fresh otc shorts. The fact that total open interest, ie the number of all outstanding contracts rose a bit while net positioning of commercials and speculators tended lower means that both sides are hedging instead of outright selling / closing positions.

Moving on to silver: Managed money longs have been reducing their net positions somewhat, we're still not anywhere close to the levels of last summer, though. The commercial net short position was lowered by 10%. Once again the major reduction came from the swap dealers, however. As I said, this means there's a lot of hedging going on in the otc market. Open interest rose by 1%, too. Overall, the net positioning in silver doesn't suggest that silver is about to turn arround. Speculative longs just seem to refuse to give up.

Again, let me be clear: The picture as of today should be much more bullish given the 2.7% loss for gold and 4% loss for silver since Tuesday. Next Friday's report should clarify that

 

[swissaustrian]

Goldmoney on the differences in gold and silver short positioning by US banks. Note that the data is as of the end of January!

Gold market report: spike in banks' net short silver position
2013-FEB-15

Silver bars Last Friday night (European time, 8 February) the Bank Participation Report for 5 February was released. This showed that US banks reduced their net short gold position by 12,886 contracts over the month of January, while non-US banks increased theirs by 2,887 contracts. This is evidence that the US banking community is aggressively closing its short positions. A little of this was picked up by the non-bank commercials (mostly mines, refiners and processors) whose net shorts increased by 6,512 contracts to 56,573.

In silver they were unable to close down their positions – the US banks increasing their exposure by 7,956 contracts over the month. The non-US banks increased their short positions by 457 contracts, representing over 42 million ounces between them to give a total short position of 277,810,000 ounces, the second highest on record.

The two charts below show the contrasting positions for US banks in gold and silver.

We can be sure that the massive short position in silver is causing difficulties for the banks concerned, because of the lack of physical supply. Therefore, the bullion banks have an exposure which appears to be out of control. While they frequently conduct bear raids (which are more successful in gold) they face the risk in silver of themselves becoming victims of a bear squeeze. Unusually, they have got themselves into this mess on a low silver price, and it is roughly double the short position than when the silver price was over $40. This being the case, when silver turns up the banks are likely to be very badly squeezed, throwing up enormous losses. Meanwhile, the non-bank commercials have kept a level head and reduced their net short position by 2,268 contracts to 3,616.

It is against that background that gold and silver prices declined this week, with gold falling about $30 to $1,630 level, and silver by $1.50 to around $30.25. Given that the bullion banks are trying to close down their positions, one would expect open interest to fall. Instead they have both risen, gold by over 25,000 contracts and silver by 2,936 contracts, indicating that buyers are taking the opportunity to accumulate at these low prices. We look forward to next week with interest.

http://www.goldmoney.com/gold-resea...-banks-net-short-position.html?gmrefcode=gata

My take: Maybe bullion banks are covering their gold shorts with gold which is leased from Western central banks. They can't do that in silver, however, because Western central banks have no silver to lease.

 

[pmbug]

"I'd buy that for a dollar!"

 

[pmbug]

... In silver strangely the CME reported a gain of 1417 contracts up to 154,364. We are now at a two year record high in silver OI with a lower price in silver ($29.86 today vs $49.00 in April 2011), In gold, the bankers are getting their way as the OI has fallen to 442,000 contracts. Earlier this year it hit its low point just below 400,000. In June 2010, it hit it's all time high of 603,000 contracts. The problem this time for the bankers is that the silver OI is ramping higher while the OI in gold is being crushed. Why? it seems that physical silver is becoming scarce and producers are hoarding the metal (see below). ...

It's hard to follow Harvey's blog some times (or at least what he's referring to by "see below"), but I think he's referring to the report about the German automaker stockpiling silver because they are having problems with sourcing it reliably. If it's true that producers are "hoarding" the metal, it would appear that they listened to Mr. Sprott.

 

[swissaustrian]

Well, the shortage meme is not proven yet. Silver is neither in backwardation nor have COMEX inventories plummeted (to the contrary). Premiums haven't skyrocketed either. I don't buy the shortage story until I see hard evidence. The only indication I see is the growing oi at the COMEX and that could have other reasons.

 

[swissaustrian]

I don't agree with everything Mr Arensberg says, but it's still a good read.

Monday, February 18, 2013
Gold COT Imbalanced, Becoming Bullish

Changes in gold futures positioning of the largest reporting traders very interesting and have now become contrary bullish.

SOUTHEAST TEXAS – Changes in the positioning of very large traders of paper gold futures in the most recent Commodity Futures Trading Commission (CFTC) commitments of traders (COT) report (February 15 for data as of the 12th) are important and very unusual.

As Got Gold Report Subscribers (Vultures) already know, because of our commentary directly in the linked technical charts, the aggressive sell down this past week (Gold -$57 to $1,609 and Silver -$1.59 to $29.76) was not, repeat not, fueled by aggressive selling by the Big Hedgers or bullion banks (contrary to repetitive uninformed or misinformed bloggers who, embarrassingly, try to fit everything into a single bank-hating theory).

Instead, with gold-buying China out of the market this past week for their New Year holiday, Japan out part of the week, an earthquake of sorts caused by long-only pension funds announcing an exit from commodities (well after the fact for many of them we might add), media focus on two or three high profile actors who sold positions in SPDR Gold Shares (GLD) (Soros, Bacon, et al, back in Q4 of 2012, but only announced in Form 13 filings this week) ... and with The Big Markets still showing surprising strength, the selling pressure on gold comes not from the bullion banks or the hedgers they trade for, but from Managed Money – the trend following Funds and the investors they trade for.

As the data will show in just a moment, we have reached a point where the positioning of the largest traders of gold futures is very imbalanced. The setup is practically begging for a massive, very violent reaction just ahead.

We only very rarely see this kind of imbalance, but when we do it can get pretty dangerous for traders on both sides of the battlefield for a very short period of time. Huge elephants, capable of buying/selling and influencing hundreds or even thousands of contracts in minutes, are battling it out now in the futures – and in the OTC physical and forwards - and we mice need shelter until the battle has declared a new victor. Having been profitably stopped out of gold futures last month, we watch the battle underway from the safety of a “sideline cave!”

To understand what is going on we first have to see where the traders were positioned as of the close on Tuesday, Feb 12. (Gold closed $1,651.07 already down $21.66 or 1.3% from the prior COT week. Silver $31.09, down $0.70 or 2.2%.) So the sell-down was already well on its way and the bears had the ball then. Recall that was the second day of China being mostly out of the physical gold market. Never forget that futures answer the physical market, not the opposite.

As the data will show, what we have is one of the rare instances when the usually long Funds (Managed Money) have taken an unusually large (actually record large) short position even while maintaining significant long positions. As the data will also show clearly the usually short Producer Merchants, the natural hedgers and the bullion banks they trade through, have not increased their hedging and instead have seen fit to have a very low level of hedging with gold having fallen to the $1,650s. We suspect that the very smart hedgers are even less hedged now with gold having blown through stops to test $1,600.

The growing selling pressure finally broke through the level where a large number of stops had accumulated on Friday, giving the Funds an unusual short term victory – on the short side.

The normally mostly long Funds have engineered a short term play normally attributed to the guys on the other side of the battlefield. Namely, they just pulled a short raid on gold. The Big Irony is that despite the obvious and clear data to the contrary, one particular camp out there will continue to blame the bullion banks for this sell down.

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http://www.gotgoldreport.com/2013/02/gold-cot-imbalanced-becoming-bullish.html

 

[swissaustrian]

There's a very interesting disconnect between gold volume and silver volume today. Gold volumes are well below the volumes of the last days while silver volumes are at the levels of last week. Subsequently, silver is making new lows in the current downmove while gold holds 1600 pretty easily. As the COT data above suggests, gold long speculators have already capitulated while silver specs haven't. Maybe the dichotomy of volumes in gold in silver indicates an ongoing silver capitulation.

 

[swissaustrian]

Detailed 20 pages must read analysis of the current COT data:
http://treo.typepad.com/files/20130218-ggr-cot-notes.pdf

 

[swissaustrian]

COT data as of Tuesday 19th is out. Remember: gold was at 1604 and silver was at 29.45 then. The real capitulation happened on Wednesday, so the market is probably even more cleared of weak hands by now!

As one would expect, NET postioning of all categories of traders changed dramatically.

First gold: Commercials (producers + swap dealers) are now NET short only 131000 contracts, ie there's not a lot of hedging going on. Speculators were really slaughtered, reducing their net long position by a monstrous 33%. Totally strange is the fact the open interest changed by ZERO. You've seen the changes in postioning and in the end the exact same number of contracts is outstanding. What's the probability of that? I say ZERO. This number makes the whole dataset appear extremely questionable.
Anyway, the positioning of the paper market is now extremely bullish. Historically strong rallies followed such scenarios.

Moving over to silver: As I wrote last Friday and several weeks before, silver paper positioning wasn't that contrary bullish. The new data shows that the situation has gotten significantly better, but it still isn't as extreme as it is in gold. Commercials have covered their net short postion significantly. However, the swap dealers have contributed unproportionally much. This means that their counterparties in the over the counter market have put on tons of new shorts. Silver swap dealers are now net long, ie the otc market is net short! If these otc shorts get caught on the wrong side of the trade, they'll be burned in a short squeeze.
The speculators have also been slaughtered in silver, reducing their net long position by a whopping 30%. They're still not a total capitulation levels as of last Tuesday: http://www.pmbug.com/forum/f13/open-interest-futures-options-watch-gold-silver-679/#post12329. Open interest in silver has risen again which just shouldn't happen during a crash. I have no explanation for that.


Summary: BUY now!

 

[pmbug]

...
Summary: BUY now!
...

I'm a simple guy. That's simple.

 

[stockjockee]

Sorry swissaustrian,
as I think you are gonna see one more major dip on Monday. This will start Sunday night. For what ever reason the stock futures will get Hammered before the open on Monday (Thats why they goosed the market today) (You would think the opposite would happen market down metals up. But we are dealing with criminal intent here and they have conditioned the masses that when the market deflates so do the metals. You know the old saying ? (Tell or telegraph a lie long enough and the masses will begin to believe it) Precious metals will take one more "MONSTER" plunge before the options expiry at the close of the market on Monday. Then Tuesday I still think you will see some pressure because that will be notice day (notice from the option holder that they elect to exersise the option and take physical delivery) The key for the Comex is to stop people from taking physical delivery. (I know the Comex does not settle in metal, but in cash. It's the psyc that counts) Then on Wednesday I see a start of a rebound. This whole paper market is a scam and I really think people are starting to see it. Buy half over the weekend, and half after Tueday would be my recommendation "Spread the Love" so you don't get smoked by the pressman in control of the printing press.

Good luck and thanks for the data ! :wave:

COT data as of Tuesday 19th is out. Remember: gold was at 1604 and silver was at 29.45 then. The real capitulation happened on Wednesday, so the market is probably even more cleared of weak hands by now!

As one would expect, NET postioning of all categories of traders changed dramatically.

First gold: Commercials (producers + swap dealers) are now NET short only 131000 contracts, ie there's not a lot of hedging going on. Speculators were really slaughtered, reducing their net long position by a monstrous 33%. Totally strange is the fact the open interest changed by ZERO. You've seen the changes in postioning and in the end the exact same number of contracts is outstanding. What's the probability of that? I say ZERO. This number makes the whole dataset appear extremely questionable.
Anyway, the positioning of the paper market is now extremely bullish. Historically strong rallies followed such scenarios.

Moving over to silver: As I wrote last Friday and several weeks before, silver paper positioning wasn't that contrary bullish. The new data shows that the situation has gotten significantly better, but it still isn't as extreme as it is in gold. Commercials have covered their net short postion significantly. However, the swap dealers have contributed unproportionally much. This means that their counterparties in the over the counter market have put on tons of new shorts. Silver swap dealers are now net long, ie the otc market is net short! If these otc shorts get caught on the wrong side of the trade, they'll be burned in a short squeeze.
The speculators have also been slaughtered in silver, reducing their net long position by a whopping 30%. They're still not a total capitulation levels as of last Tuesday: http://www.pmbug.com/forum/f13/open-interest-futures-options-watch-gold-silver-679/#post12329. Open interest in silver has risen again which just shouldn't happen during a crash. I have no explanation for that.


Summary: BUY now!