Monday, November 15, 2010

COT Surprise

The CFTC commitments of traders (COT) report for November 9 was released today, Monday at 15:30 ET.  It was delayed to today because of the Veteran’s Day holiday last week.  The report is normally released on Friday afternoons for positions as of the previous Tuesday.

We’ve not had the time to do much analysis, but here is the “rush” version of the data we just received. For many COT following observers it contains quite a surprise.    

Remember at Got Gold Report we are focused on the positioning of the largest commercial traders for gold and silver futures, the traders the CFTC classes as Producer/Merchants and Swap Dealers combined.  What we are attempting to understand is if the Big Sellers of the bullion futures market are becoming more confident or less confident that metals prices will fall.  We use our impressions from the changes in their positioning as one indicator.

Gold COT

In the most recent report for November 9 as gold rose a net $35.72 or 2.6% COT Tues/Tues from $1,357.22 to $1,392.94 the large commercials or LC’s increased their combined net short positioning (LCNS) by 14,341 contracts or 5.2% to show 290,953 contracts net short as the open interest increased a much larger 32,383 contracts to a new COT record 650,764 contracts open. 


Continued …

We compare the LCNS to the total open interest, what we call the LCNS:TO, to gauge the large commercial net short position relative to the entire open interest on the COMEX futures market, which we think gives us a better idea of the LC’s confidence that the price of gold will go lower.  When the LCNS:TO is rising we believe that means that the LC’s confidence in lower prices is rising and vice versa.  This week, with the LCNS increasing a little less than half of the increase in the open interest, the relative commercial net short position is almost exactly flat at 44.7%.


Recall that the trading that Tuesday was energetic to the upside with gold having touched as high as $1,424 (roughly $31 higher than the close) before the CME announced the higher margin rates for silver which triggered an after-market sell down.  Thus, this COT report reflects a mostly very strong gold market.

Silver COT

As silver rose a net $2.02 or 8.1% COT Tues/Tues from $24.91 to $26.93 the largest hedgers and short sellers of COMEX silver futures ACTUALLY REDUCED their combined commercial net short positioning (LCNS) by a startling 5,563 contracts or 9.9% to show 50,485 contracts net short as the open interest fell 2,215 contracts to 156,418 open.  Surprise!



When compared to the total open, this week’s relative net short position for silver futures actually FELL from 35.3% to a strangely low 32.3%.



Remember that the price of silver was in a runaway gallop up till the announcement by the CME of higher margin rates, having tested above $29 in a short-covering stampede.  The market was then threatening to become “disorderly.”  Funny how the market only seems to be thought of as disorderly when it is rising, but there you go.   

The CME announcement threw cold water on red hot silver, knocking more than $2.00 off in the last 70 minutes of electronic trading.  Otherwise the close for silver on Tuesday might have had a $29 or $30 or even higher handle. 

As we said, we have not yet had time to do much more analysis, but this much is clear.  As of Tuesday, November 9, when silver was red-hot, and had moved as high as $4.30 above the previous COT cutoff closing price, we can say that the largest, best funded and presumably the best informed commercial traders (including the bullion banks and swap dealers) were definitely NOT selling heavily into the price surge for silver. 

Indeed, they were reducing their net short exposure instead. 

For gold, we can say that the COT report is about as we might have expected on a large increase in the price, with the commercials adding a little less than half of the increase in the open interest net short. 

For silver, what can we say, except it is surprising, … it is very highly unusual to see the Big Sellers covering or offsetting a goodly number of their net short positions as silver was moving sharply higher.  

We suppose it’s not really a surprise to see the data and the commercial short covering.  How else could the price of silver have increased so much by Tuesday without buying pressure coming in from both sides of the battlefield, the long side AND the short side.  The long side buying and the short side covering, … but it does make us wonder why the short side is just plain unwilling to sell into this historic rally for silver. 

What’s more, for silver this is the sixth consecutive COT report that shows the Big Sellers REDUCING  their net short position as the price of silver rose. 

That’s very strange, very unusual and downright stunning.  Something has indeed changed in the tiny silver market. 

Got Gold Report subscribers learned a good deal more about that in this weekend’s full Got Gold Report.   

That is all for now, but there is more to come. 

Edited to replace the silver graphs at 20:12 CT. 





The Original
Vulture Speculator

Trading gold, silver and mining shares since 1980 with a focus on taking advantage of volatility extremes, Gene Arensberg analyses the markets through a basket of technical and fundamental indicators and shares his findings from time to time here at Got Gold Report. Mr. Arensberg has been quoted in the Wall Street Journal, Dow Jones MarketWatch, USA Today and dozens of other news organizations.

"I've been a huge fan of Gene and his amazing work for years..."

Brien Lundin, CEO, Jefferson Financial, Host of the annual New Orleans Investment Conference and Publisher of Gold Newsletter

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