Friday, December 10, 2010

Important COT Report Today

The CFTC commitments of traders report comes out later today at 15:30 ET.  It will be for the futures trader positioning as of Tuesday, December 7, and lest we forget, Tuesday is the day when gold and silver first tested new highs and then sold off strongly, taking out the previous day’s lows.  

Gold and silver had gotten ahead of themselves and the hottest of the hot money rushed the exits that day.  Gold finished off $21.62, but still closed above $1,400 at $1,401.79 on the Cash Market, having tested as high as a new all time high of $1,430.63 earlier in the day.  So even though gold closed the COT week up $15.96 or 1.2%, it closed about $22 below the previous day’s (Monday’s) close and about $29 under that morning’s pinnacle.  We traders witnessed a bearish “outside reversal” for gold.

So the COT report this weekend will be doubly interesting because it should reflect at least some of the positioning of the largest futures traders precisely when the current pullback was getting underway.  If, for example, we find that the more mercenary Swap Dealers or the “usual suspects” Producer/ Merchants very strongly increased their net short positioning in this report, then it would reflect their heavy selling just ahead of the sell-down event and the selloff can be partially attributed to them directly and vice versa.  

Below is the LCNS graph (large commercial net short positioning) for gold from last week for reference:



On the other hand, we may find something else entirely when the report surfaces. 

Silver outdid gold’s volatility by a wide margin COT Tuesday.  Recall that silver was on a raging romp higher early in the day, having closed in New York Monday at $30.12 on the Cash Market.  Near panic buying ensued overseas and in the early going on Tuesday with silver touching a new 30-year high of $30.67 on the cash market.  But like gold, the vanguard for silver outran its key supply lines and when the selling began there were not nearly enough buyers to sustain prices above $30.  Two strong waterfall-like plunges in the regular session plus a big one in the Globex after hours later, and silver showed a last print of $28.65 on Tuesday. That was $1.47 lower than the Monday close and a whopping $2.02 or 6.6% below the highest point earlier in the day.   


We can report that the extreme volatility we have been calling for has indeed arrived.  

So even though silver will show a gain of 59-cents or 2.1% COT Tues/Tues; even though this week’s COT report will be with the metal at the highest nominal COT closing price since 1980, we need to keep in mind the frantic trading that occurred earlier in the day when we review the positioning of the largest commercial traders of COMEX futures in this week’s COT report. 

As that energetic trading was occurring we did see the open interest for silver futures bump higher, but not really by all that much.  Interestingly, as of Wednesday’s figures, the open interest has retreated again back to around 132,000 contracts.  Below is the LCNS graph for silver from last week for reference. 



Our interest is high for this particular COT report for the obvious reasons, but also because this is the first COT report of the month, and that means we should also get the figures for the positioning of banks in futures. 

Recall that last month we saw the five big U.S. reporting banks had increased their net short positioning by about 8,900 contracts to roughly 113,000 contracts net short gold as gold had advanced from the $1,340s to $1,357 (from October 5 to November 2).  

The “less than four” and probably two big U.S. bullion banks had only increased their net short positions by 106 contracts as silver rose from $22.83 to $24.91 over the same period.  Remember our comment at the time that it was strange to see the banks unwilling to sell into the historic rally for silver?  

Well, we can’t wait to see what happened in this report as silver increased again, this time from $24.91 to as high as $30.67, before getting a smack down back to $28.65.  What is particularly interesting to us for silver is that on November 2 the open interest for silver was just under 159,000 contracts.  We believe the open interest for this COT report is going to be something like 20,000 contracts less.  With silver $3.74 or 15% higher, and having tested as much as $5.76 higher at one point, what changes in the net short positioning did the big U.S. bullion banks make? 

We will know more about 15:45, after we have devoured this week’s COT report.  Just below is our tracking graph of the nominal net short positioning of the U.S. banks in silver futures through last month’s (November) data for reference. 



Obviously, at least through last month’s data the U.S. banks have not been willing to strongly increase their collective net short positioning all that much, contrary to popular opinion. 

If we view the changes in positioning by the commercials as significant, we will probably prepare a COT Flash report for subscribers on Sunday.  

As we send this on to be posted on the web site the profit taking pullback for gold and silver continues with gold slightly lower in the $1,370s and silver marginally above $28.  We continue to believe these dips will be amazingly well bid, especially in the early going next week, but as always we will rely on our trading stops in case that view proves overly optimistic.  

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That is all for now. Have a good weekend everyone.  


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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