Thursday, July 18, 2013

Latest GGR Video on YouTube – Three of Five Classes of COMEX Traders Record Short Gold Futures

YouTube TVHOUSTON --  As a courtesy to our entire GGR readership, our latest Got Gold Report video update on the July 12  Commodity Futures Trading Commission (CFTC) commitments of traders (COT) report for gold futures is now posted in the public domain.  Got Gold Report subscribers received access to the new video report Wednesday, July 17. 

This report focuses on the unprecedented situation which has developed where three of the five classes of traders of futures the CFTC divides traders into are now short gold in record or near record high numbers.  Many observers are familiar with the fact that the trend-following large spec funds hold very high short bets in COMEX futures (bets that gold will fall further), but the situation revealed by the new data is actually much more dramatic than just that detail alone. 

In fact, we believe that only a very few participants realize that the most recent disaggregated commitments of traders data (DCOT as of July 9) shows that three classes of futures traders, Managed Money, Other Reportables and Non Reportables, all hold record high or in the case of Non Reportables near-record high short bets in gold futures. 

The data show the three classes of traders we would normally associate with the net long side of the gold market – the predominantly speculative traders – have built up short bets of nearly 180,000 COMEX 100-ounce contracts equivalent to nearly 18 million ounces of gold. 

We can reasonably assume that none or virtually none of the trend-following spec traders actually have the physical gold to deliver into those short sales.  Therefore we know to a certainty they will, that’s will, be buying back those shorts at some point to clear or “cover” their position. The only question is when.  

Traders Yellow Shirts SignalingAs we show in the video, this highly extraordinary condition has developed at the same time that the largest, best funded and presumably the best informed traders of gold futures – the traders classed by the CFTC as “commercial” -- the traders we normally associate with gold hedging, hold tiny net short hedge positions.  In fact, the combined commercials (the other two classes of COMEX traders) currently hold their least number of gold hedges on a net basis in 12 years.     

Commercial traders include producers, processors, refiners, bullion merchants, jewelry manufacturers, physical bullion management firms, mercenary swap dealers, etc., and the bullion-trading banks many of them end up trading through on the COMEX bourse.  Commercials are the people involved in the gold trade who predominantly use futures to hedge their price risk.

As we also show in the video, the uber-high spec short positioning comes when the four largest U.S. bullion-trading banks have actually become more than 44,000 contracts net long gold futures, according to the July 5 CFTC Bank Participation in Futures Report, a very rare condition suggesting that the bullion banks are positioned for higher, not lower gold prices.  Indeed, the U.S. banks have positioned as they did during the 2008-panic, when gold traded as low as the $680s briefly, only a lot more so this time with gold having corrected from the $1,920s to the $1,250s.     

So the bottom line is that while many people may be aware that the spec funds – the hedge funds, commodity pool operators and commodity trading advisors, et al – have been shorting the heck out of gold while it has been in a down trend.  They may even know that the spec funds have become record short gold, but very few realize that not just the funds, but now three of the five classes of gold traders on the COMEX are record or near record short gold futures.

People may not realize the staggering extent of their cumulative short firepower and just how unusual it is. 

Finally, armed with this knowledge, it behooves all gold market observers to be on the lookout for some kind of catalyst which might trigger gold to rise in price just ahead.  Should gold take out important technical resistance to the upside, and do so like it “means it,” an epic short covering surge could result and the exit door may seem extremely small for the gold short-selling gamers then. 

With that much high-octane short covering horsepower in play, it could be like someone screaming “Fire!” in a crowded theater with only one, very small exit. That’s if, repeat if, a sure-enough gold-favorable catalyst or black swan appears while the speculative traders hold so gigantic a collective short position.  

Much more in the brief, six-minute video embedded below for convenience.  A direct link to view it on YouTube is at the end of this posting.  


Direct link to view on YouTube:


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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