-- Posted Sunday, 23 May 2010 | | Source: GoldSeek.com
Bottom line: COT report shows COMEX commercials not aggressive on the sell side for gold, but the largest hedgers and short sellers hammer silver futures ahead of silver plunge. Gold -0.6% and the gold LCNS -1%. Silver -1.5% and the silver LCNS zooms higher 12.8%. Details just below.
ATLANTA – From the sidelines with our short-term gold-silver ammunition, but glad we hold physical metal in our longer-term arsenal, we peer into a small window of the largest traders of gold and silver futures with this special report.
With the violence of the past week, both in the equity markets and in precious metals, it was easy to be anxious to get our hands on the COT data below.
We don’t like being in port when there is good fishing going on. But we like violent and uncertain markets less and less as what’s left of the topside hair gets grayer.
Last week’s study into the COT produced a kind of curve ball, because it suggested to those of us who follow the COT regularly that the traders we call the “LCs” were not all that aggressive on the sell side of gold and those same metal sellers were actually covering some of their short-side bets for silver. (See the May 14 COT Flash report for reference on the front page of the web log.)
That sounds more bullish than bearish to COT wonks like us, but gold and silver have since then gotten clobbered, with the majority of the damage coming this week right after this week’s COT data cutoff on Tuesday. We are now stopped out of our short-term trades for both (profitably, thank you very much) and looking at these big dips with a Vulture’s hungry eye.
But that data was from the previous Tuesday (May 11), well before this near-panic sell down in the equities markets. We’re talking about 750 DOW points, roughly $55 in gold and about $1.65 in silver ago for that data, give or take a “few.” So let’s acknowledge that conditions have changed in a material way since then.
Trouble is, this data we are about to look at is from before most of the panicky, rush to liquidity downside reaction for precious metals had occurred, but it is all we are going to get until next Friday’s data. So we will just have to do our best with it.
Let’s see if this COT report adds or detracts from our intention to rejoin the metals bulls on the gold-silver high seas as soon as we think the conditions allow us to.
This week’s COT Flash begins with gold.
Gold COT
The Commodities Futures Trading Commission (CFTC) issued its weekly commitments of traders (COT) report at 15:30 ET today, Friday, May 21, 2010. The report is for the close of trading as of Tuesday, May 18.
GotGoldReport.com is focused on the changes in positioning of the largest futures traders in that report – the traders the CFTC classes as “commercial.” We refer to those commercial traders as “LCs” for “Large Commercials.”
As gold edged $7.76 or 0.6% lower to $1,224.90 COT reporting Tues/Tues, COMEX commercial traders actually reduced their combined collective net short positioning (LCNS) by 2,900 contracts or 1% from 282,644 to 279,744 contracts net short as the open interest declined by 3,746 contracts from a very high 583,504 to a still very high 579,758 contracts open.
That is as of the Tuesday close, with gold then attempting to show support in the $1,220s. On Monday (May 17) just prior to the cutoff, gold peaked near $1,242 before selling off to the $1,220s. On Tuesday the 18th, gold first tested as low as $1,207.10 before rallying back up to the $1,224.90 close.
Since the COMEX commercials did not really increase their net short positioning as of the Tuesday cutoff, apparently they were still not in a more aggressive selling mood right up until the point where gold plunged $31 on Wednesday.
Since Tuesday, gold has been clocked for more than $47, but if the commercials saw the swoon coming, they sure didn’t tip their hand ahead of time. Indeed, as a group the largest futures sellers actually reduced their net short positioning, a little, ahead of the big dip for gold.
Here's the nominal LCNS graph for gold futures (Graph1):
It’s rare to see gold sell off harshly without a corresponding big jump in the LCNS, either just prior to or during the event. In this particular case and in this particular chart we cannot point to a red flag event that would have signaled the sell-down in advance of it. That suggests to us that the sell down might have been a bit of a surprise to the LCs. Otherwise they should have been piling on the short side just ahead of it.
As of Tuesday, the largest commercial sellers of gold were still not aggressively “hedging.” The LCs actually reduced their net short positioning by almost as much as the reduction in the open interest. Had they been aggressively on the sell side then, we would not see that. We would have seen the LCNS increasing even though the open interest was falling or something similar. (We use the term “hedging” loosely because the CFTC does.)
When compared to all contracts open, the relative commercial net short positioning (LCNS:TO - the most important graph we track) shows another slight tick down to 48.3% versus last week’s 48.4% of all COMEX contracts open.
Here's the LCNS:TO graph for gold (Graph 2):
That downtick in the LCNS:TO is almost invisible, and it sure does not suggest that the LCs were piling on the short side of gold or aggressively selling it prior to this most recent selloff.
The above is an excerpt of the full Got Gold Report web log update. To continue reading please click on this link:
And thank you for doing so.
A land developer, professional numismatist, self-taught bullion trader and investor since 1980, Gene Arensberg analyzes technical and fundamental developments in the precious metals markets. In 2000 Gene started sharing his own market research with fellow traders and fund managers. Those email reports evolved into his popular Got Gold Report, a biweekly look at important indicators for gold and silver published on the web. Gene’s more in-depth market reports, insights and trading ideas are available at www.GotGoldReport.com.
-- Posted Sunday, 23 May 2010 | Digg This Article
| Source: GoldSeek.com
