Friday, September 06, 2013

Gold and Silver Disaggregated COT Report (DCOT) for September 6

CFTC logo

UPDATE 2. Adds charts for a visual reference of the net positioning of U.S. bullion trading banks in gold futures according to the CFTC Bank Participation Report and corresponding charts of the exodus out of short positions by Spec traders on the COMEX bourse.  

UPDATE 1:  Adds CFTC Bank Participation data, chart, commentary.

HOUSTON -- This week’s Commodity Futures Trading Commission (CFTC) disaggregated commitments of traders (DCOT) report was released at 15:30 ET Friday. Our recap of the changes in weekly positioning by the disaggregated trader classes, as compiled by the CFTC, is just below.  As we have done for some time now, this week we are also adding in the net positioning of traders the CFTC classes as “Commercial” in the Legacy COT report. 

20130906 DCOT


(DCOT Table for September 6 and Legacy COT commercial positioning for data as of the close on Tuesday, September 3.   Source CFTC for COT data, Cash Market for gold and silver.)  

In the DCOT table above a net short position shows as a negative figure in red. A net long position shows in black. In the Change column, a negative number indicates either an increase to an existing net short position or a reduction of a net long position. A black figure in the Change column indicates an increase to an existing long position or a reduction of an existing net short position. The way to think of it is that black figures in the Change column are traders getting “longer” and red figures are traders getting less long or shorter.

All of the trader’s positions are calculated net of spreading contracts as of the Tuesday disaggregated COT report.

We also focus on the Legacy COT positioning of traders deemed “Commercial” by the CFTC, which includes Producers, Merchants, Processors and Users, plus Swap Dealers in a single category.  The Legacy COT report preceded the Disaggregated COT report and we have tracked and charted it for many years, focusing on the movement and positioning of commercial traders – The “Big Hedgers.”   

Update 1: To add a brief comment we shared with our private GGR members list this afternoon.  

COT bulletin: The most interesting statistic coming from the COT is from the Bank Participation Report and the changes by U.S. banks. From Aug 6 to Sep 3, as gold regained $129.19 or 10.1% from $1,282.80 to $1411.99, the 4 reporting U.S. banks covered (reduced) or offset a small 14,567 lots from 59,473 to 44,906 contracts NET LONG gold. So as gold rallied big the big bullion trading U.S. banks had not yet seen enough of a gain to go back to their more normal net short positioning. This, in a context of backwardation and negative GOFO, has got to be about the most bullish signal we can look at in these COT data. That is all for now, have a good weekend. 

20130906 BPR Gold


Please note:  Source for data CFTC for Bank Participation positioning, Cash Market for gold, GGR.  The chart above is designed to capture the “net short” positioning of reporting U.S. banks, which is their “usual” condition.  A negative figure actually represents a NET LONG position in other words.



Update 2. Adds chart for a visual reference of the net positioning of U.S. bullion trading banks in gold futures according to the CFTC Bank Participation Report.  

  20130908 US Banks Gold Futures

It is rare to see the U.S. bullion banks on the long side of gold futures.  As the comment in the chart reads:  Since the bull market began in 2002, prior to June, 2013, the only other time that U.S. Banks were net long gold futures was in June/July of 2008, with gold < (less than) $1,000 during the 2008 Panic. Gold subsequently rallied in the largest, most important bull market move of all time, peaking in September, 2011, at $1923. 

From the CFTC Bank Participation Report data we can conclude that sometime in May, with gold then either side of  USD $1400,  the largest four U.S. bullion banks became net long gold futures for the first time since the 2008 crisis.

In June, as gold sold off even further on momentum and fear, finally capitulating on June 28 near $1180, the reporting bullion banks strongly increased their net long positioning.  By July 2, with gold then $1243, the bullion banks reported their net long position had increased to 44,717 contracts. 

In July, as gold rallied back to test $1350 in the first recovery leg, the normally net short bullion banks (including the largest hedgers) actually increased their net long positioning. By August 6 the four reporting bullion banks reported a very high 59,473 contracts net long with gold then $1282. 

In August, as gold put in a second recovery leg up to test the $1430s, the bullion banks finally started to pare back some of their net long positioning, but not really all that much.  By September  3, with gold then $1411, the bullion banks still reported 44,906 COMEX contracts NET LONG.  

We can conclude that gold testing the $1430s in August was not enough of a gold price recovery for the large U.S. bullion banks to cover or sell out their rare net long positioning for gold futures.

We can also conclude that once gold sold down through $1400 for the second time in May, the largest, best funded and presumably the best informed traders of gold futures on the planet - the market making bullion banks - were positioning for higher, not lower gold.  Even when gold had recovered the $1400 level in August the bullion banks have opted to keep a majority of their net long positions, which indicates to us that they believe gold's path of least resistance is higher.  

This is the kind of information that must give gold bears heartburn.


Notice, please, that the bullion banks remaining very strongly net long gold futures in the September 3 report follows very closely on the heels of the two largest reductions in Spec gross short positions in the history of the CFTC futures only  Disaggregated Commitments of Traders Reports (DCOT) as shown in the charts below.

In the August 6 DCOT report (gold then $1282) it surfaced that Spec traders classed by the CFTC as Other Reportables closed out an amazing 37,751 shorts in one week. (From a near record 69,332 to 31,581 shorts, which shows clearly in the chart below.)

20130908 Other Reportable Short

That stunning exodus from the short side is, we believe, the largest one week reduction of a gross short position by any class of Spec (non-commercial) trader since the DCOT data begins in 2006.  (Indeed it is second only to the gigantic 42,953 reduction by Producer/Merchant commercials in August of 2008, during the 2008 Panic). 

In the August 27 DCOT report (gold then $1414) Spec traders classed by the CFTC as Managed Money closed out a very large 20,925 shorts in one week, which is the largest one week reduction in shorts by Managed Money in DCOT history as well (even larger than the 20,079 short covering in the September 23, 2008 report with gold then $779, now a close second in size).

  20130908 Managed Money Short

So not only do we see the normally net short commercial bullion banks hanging onto a very large and highly unusual net long position, it is in the context of the largest exodus of Spec shorts in DCOT history during the month of August, along with backwardation on the COMEX and in London; and during the longest period of negative gold forward offered rates or GOFO in London in anyone’s memory (since July 8).

Are all these signs connected in some way? 

You bet they are. 

Specs covering shorts big time. Normally net short bullion banks heavily net long. Backwardation, negative GOFO ... all signs that the largest traders no longer fear a further material move lower in gold.  To the contrary, right or wrong we view these signals as supportive of a bullish bias for gold futures looking ahead. 

That is all for this update. Carry on.    


Edit 22:00 to replace the net positioning of U.S. banks graph and correct two typos. 




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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