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.
(DCOT Table for May 3, for data as of the close on Tuesday, April 30. Source CFTC for COT data, Cash Market for gold and silver.) (More...)
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.
COT Role Reversals
Edit 1: If we could only point to one chart out of the 30 or so we track on the COT reports, we would point to the chart below - the net positioning of the traders the CFTC classes as "Non-Reportable" in gold. Non Reportable traders (NRs) are The Little Guys in the futures biz, trading under the number of contracts which require official reporting.
For the first time in DCOT reports history, smaller traders are net short gold. (Disaggregated COT data begins in 2006.)
(Source: CFTC, Cash Market, GGR)
As gold recovered $63.55 or 4.5% Tuesday to Tuesday smaller traders as a group were actually net sellers of 1,622 contracts, so they moved from 133 lots net long to 1,489 contracts net short.
Historically extreme lows in the NR net long positioning often correspond with important turning lows for the price of gold. We have not yet had a condition where the NRs have been net short gold, until now.
One observation we can make with just the chart above and the table at the top of this offering is that the traders generally considered as speculators, the Managed Money, Other Reportables and Non Reportables were all net sellers this week even though gold was moving considerably higher. The Specs were selling into the rally in other words (at least until Tuesday and $1,476 gold).
Meanwile, the traders generally considered to be commercial and/or hedgers, the Producer, Merchants, Processors, Users, including bullion banks (PMs) and the Swap Dealers (SDs), were actually net buyers of gold futures even though the price of gold was moving materially higher.
For example, the chart below is the net positioning of the PMs:
(Note: Since the net position of the PMs is always a negative number in the graph above a higher blue line is actually a lower net short position and vice versa.)
For much or most of the gold bull market since 2002 it has been very unusual to see the PMs reducing their net short positions as the price of gold rose. That's actually pretty rare. One notable period where we did see PMs covering on a rising gold price was as gold had broken out above all known resistance in July of 2011 and was driving higher through the $1,500s. In that case the PMs were defensively covering their shorts out of necessity.
This week, as gold was recovering $63.55 or 4.5% the PMs, the traders we call the Big Hedgers, were actually covering or offsetting another 7,110 contracts (14.2%) of their collective net short positioning and ended the COT week with an extremely low 42,952 contracts net short - the lowest PM net short position since September 16, 2008 (27,386 then with $779 gold). That was the week we all learned that Lehman Brothers was going down and would not get a bail out.
It is crystal clear that the Big Hedgers have taken advantage of this gold sell-down to strongly REDUCE their collecitve net short exposure to gold futures. Indeed, in the three reporting weeks since April 9, the PMs have covered or offset a whopping 33,610 lots or 44% of their already fairly low net short positioning (from 76,562 to 42,952 lots net short) - while gold first careened a net $218.19 or 13.8% lower (to $1,367.06 Tuesday, April 16), but has since recovered $109.27 or 8% to $1,476.33 on April 30.
(Since the April 16 intra-day low of $1,321.50 gold has quietly recovered a net $148.40 or about 11.2% for a Friday last print of $1,469.90 on the Cash Market.)
We see this strong hedge reduction as more of an offensive play - taking profit and reducing exposure to a rising gold price by the natural hedgers. The people who are involved in the actual gold trade and have to protect their inventory and businesses from the risk of a falling gold price; the large bullion dealers, the refiners, the producers, the jewelry manufacturers, the largest holders and managers of physical bullion ... and the bullion banks many of them end up trading through, have been getting the heck out of their collective net shorts in a big hurry in other words.
To "nutshell" the thoughts above what we have is a situation of the largest, best funded and presumably the best informed commercial hedgers using the gold smash to get really, really small in their net short positioning at the same time the trend following Funds and smaller traders are still selling into the nascent gold recovery (albeit at a smaller pace than last week). The Funds are therefore positioning for a gold recovery failure and lower gold prices and the hedgers positioning for the opposite.
It's not every day we see that. It's as if the largest traders of paper gold futures have undergone a temporary role reversal.
There is, of course a lot more to it than just the above, such as the enormous amount of pent up short covering that literally must occur at some point and at some level and we will have a good deal more for GGR subscribers embedded directly in our GGR technical charts later this weekend if all goes according to plan.
That is all for now, but there is more to come.
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