Friday, July 01, 2011

Stunning Plunge in COMEX Commercial Gold Net Short Futures

Lowest relative commercial net short position to total open interest since 2008 panic for silver futures. 

Accelerated pace of commercial short covering.

HOUSTON – We here at Got Gold Report are keenly interested in over-sized changes in the positioning of the largest, best funded and presumably the best informed traders of gold and silver futures on the planet – the traders classed as “commercial.” Witness a truly historic one-week plunge in the commercial net short positioning for gold futures traded in New York on the COMEX division of the CME. 

20110701LCNSGold 
 
COMEX traders classed by the CFTC as “commercial” net short positioning since 2007. Source CFTC for commitments of traders (COT), Cash Market for gold. If any of the images are too small click on them for a larger version.  

A short position benefits if prices for the commodity fall and vice versa. 

Commitments of traders data (COT) released today at 15:30 New York time by the Commodity Futures Trading Commission (CFTC) revealed a stunning plunge in the number of net short bets traders classed by the CFTC as “commercial” held as of the end of trading on Tuesday, June 28. 

As gold fell $44.97 or 2.9% Tuesday to Tuesday from the highest ever gold price on a COT reporting Tuesday of $1,545.98 to $1,501.01, the veteran hedgers and short sellers covered or offset a whopping 42,492 contracts or 16.9% of the large commercial net short position (LCNS) – from 251,247 to 208,755 contracts net short.

Gold down 2.9% - commercials get the heck out of nearly 17% of their short exposure - a very hot pace of short reduction. 


Continued…


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That is the largest nominal one-week reduction in commercial net short positioning in New York gold futures since August 12, 2008, during the depths of the Great 2008 Panic. With gold then off a huge $60.50 or 6.9% in a single reporting week to $813.85, the commercial traders then reduced their net short bets by 43,104 contracts or 21.7%. (See the graph above for that period.) 

The relative commercial net short positioning (the commercial net short position as a percentage of the total open interest or the LCNS:TO) dropped by a very large 6.7 percentage points from 48.8% to 42.1%.   That is the largest one-week drop in the LCNS:TO since August 21, 2007, with gold then trading at $657.78 and staging for a major bull move higher that wouldn’t peak until the following April above $1,000 for the first time ever. 

(Edit at 19:00 CT to add the LCNS:TO graph by request.)

20110701LCNStoGold 
COMEX traders classed by the CFTC as “commercial” relative net short positioning or LCNS:TO since 2007. Source CFTC for commitments of traders (COT), Cash Market for gold. 

 
Silver

As silver fell a large $2.41 or 6.6% Tuesday to Tuesday, from $36.32 to $33.91, the commercials covered or offset a very large 6,398 contracts or 18% of their net short positioning from 35,564 to 29,166 COMEX contracts net short.  This, as the open interest for silver futures dropped 5,908 lots to just 114,330 contracts open,   the lowest level of open interest for silver futures since March of 2010. 

20110701LCNSsilver 

COMEX traders classed by the CFTC as “commercial” net short positioning for silver since 2007. Source CFTC for commitments of traders (COT), Cash Market for silver.

Witness now the lowest nominal commercial net short positioning for COMEX silver futures since April 28, 2009 with silver then trading at $12.48 and staging for a rally up to above $16 a month later. 

The relative commercial net short positioning (LCNS:TO) for silver plunged from an already quite low 29.6% to a very low 25.5% - a drop of 4.1 percentage points in a single week.  That is the lowest relative commercial net short positioning for silver futures since October 28, 2008, during the Great 2008 Panic as well, back with silver then trading at $9.19 and the LCNS:TO then at a very low 24.5%.

(Edit at 19:00 CT to add the LCNS:TO graph by request.)

20110701LCNStoSilver 
COMEX traders classed by the CFTC as “commercial” relative net short positioning for silver since 2007. Source CFTC for commitments of traders (COT), Cash Market for silver. For a larger image click on the top of the graph.   

For whatever reasons, the largest hedgers and short sellers of gold and silver futures have used the recent declines in the price of gold and silver to get a great deal “smaller” in their net short bets – and in a New York hurry as evidenced in the very important graphs shown.

Most anything can happen over the very short term, but historically very large, abrupt changes in commercial net short positioning have been like klaxons sounding for experienced traders to “get to battle stations.”  These are indeed just the kind of very large changes of which we speak.

For silver specifically, the very low level of commercial net short positioning suggests that the Big Sellers of silver futures are not at all confident in lower silver prices just ahead.  Notice that as the LCNS:TO reached the lowest levels on the graph above it almost always coincided with lows in the price of silver or very near them.

We certainly cannot say that the Big Sellers of silver futures are positioning as though THEY think that silver is set to plunge further - to the contrary.  The Big Sellers are net buyers here - at a pretty fast clip, not net sellers.

Be sure to view the excellent commentary on silver by Eric Sprott and Andrew Morris linked in the VultureInReview section immediately to the right of this post on the Home page of the web log.  It is indeed worthwhile in our opinion. 

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We will have much more about this remarkable development in our full Got Gold Report for Vultures (Got Gold Report subscribers) scheduled for late Monday, early Tuesday at the latest.

Have a great holiday weekend everyone.  That is all for now, but there is more to come. 


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The Original
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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.

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