COMEX Swap Dealers Ease Back to Net Short Gold
- But not a lot and they are still near flat gold which some traders read as more bullish than bearish.
HOUSTON -- One week ago we reported that for only the third time in the six years of Commodity Futures Trading Commission (CFTC) disaggregated trader data, commercial futures traders the CFTC classes as Swap Dealers reported a net long position in gold futures on the COMEX bourse in New York. (Link to the July 14 article.)
New data released by the CFTC Friday, July 20, show that the veteran Swap Dealers are no longer net long, but they are not all that net short either.
As of Tuesday, July 17, as gold edged $15.88 or 1% higher on the Cash Market in New York to close at $1,583.04, Swap Dealer commercial traders reported holding 55,690 gold contracts long and 56,308 short for a combined net short position of a small 618 lots according to data released by the CFTC on July 20.
So as gold edged about $16 higher in the choppy, range bound COT trading week, the traders classed as Swap Dealers flipped from 799 contracts net long (which is unusual) back to 618 contracts net short, a net swing of 1,417 contracts added to the net short side of the equation. (A rather small move, barely visible in the chart above.)
Meanwhile, as shown in our weekly recap of COMEX DCOT trader positioning yesterday, Producer/Merchant commercial traders, which include bullion banks and the largest bullion dealers, increased their net short positioning by a modest 4,636 lots to show a net 158,201 contracts net short.
All the other classes of traders, Managed Money, Other Reportables and Non-Reportables reported higher net long positioning, with smaller traders doing the bulk of the net buying, as shown in the DCOT recap linked above.
Swap Dealers are commercial derivatives traders who primarily trade in the form of swaps in other markets and then hedge those sophisticated positions using futures contracts.
The CFTC requires all large traders to report their open positions as of the close on Tuesday each week and then releases that Commitments of Traders (COT) data to the public, usually the following Friday.
A net long futures position benefits if prices rise. A net short position increases in value if prices fall. Either or both positions can be used to hedge opposite exposure in the same market or in other markets.
The bottom line for this message is that it didn’t take very much of a rise in gold to send the normally net short Swap Dealers back from net long to net short, but they are not very far from net flat, which is itself remarkable. Traders we correspond with are nearly unanimous that is a more bullish than bearish condition, especially taken in context of Managed Money traders covering or reducing their short bets by a larger 6,340 contracts or 18% to report 28,444 shorts.
Swap Dealers near flat; Managed Money traders near their lowest net long position in four years; Other Reportable traders within 5,000 contracts of their highest ever net long position, all in a summer, light liquidity, nervous environment. The largest trader positioning is a high-octane powder keg recipe for explosive volatility just ahead, we believe.
Get ready for the fireworks, but whichever side of the battlefield one favors be sure and MIND YOUR TRADING STOPS (for short term trading). Stick with the real deal physical metal for peace of mind and protection against currency debasement, purchasing power preservation and contagion insurance.
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