Over past fifteen years or so, I have watched the Large Commercials (LCs), as they are known to futures markets traders, change their positions in gold and silver with uncanny accuracy. The LCs have not always been on the right side of the markets, but they have been right often enough to profit handsomely from their positions. Critics of LC positioning call it manipulating, and there are good arguments that they are right.
One of the best analysts of the LCs’ positions is Gene Arensberg, who publishes Got Gold Report. From the latest Got Gold Report:
In the five reporting weeks just since September 6, as the price of gold fell as much as nearly $350 at one point, before snapping back up to settle a net $213.19 or 11.4% lower (as measured on Tuesdays, from $1,874.87 to $1,661.68) the combined commercial traders have covered or offset an eye-opening 59,236 contracts or 26% of their collective net short positioning. Indeed last week’s COT report (Oct 4), showing 164,751 contracts of LCNS was the lowest net short stand by the commercial traders since the post 2008-crash positioning of April, 2009.
We find it enormously interesting and instructive that in the 10-weeks since August 2, as the price of gold launched from the $1,650s up to the $1,900s, then careened lower in panic and liquidation to as low as the $1,530s and has now returned almost exactly to where it was in August – actually slightly higher than then – as gold apparently pulled a blow-off top, the largest, best funded and presumably the best informed traders the CFTC classes as commercial have very, very strongly reduced their collective net short positioning for gold futures. (From 287,634 contracts net short August 2 to 168,478 lots on Tuesday, Oct 11. A reduction of a whopping 119,156 contracts or 41%!)
In case it isn’t just as obvious to readers as it is to us, let us state it differently. Since August 2 the price of gold, with all its gyrations up and down, is nearly net flat, but the collective bets by commercial traders that gold will fall in price are now much smaller than then. If we can assign a confidence level to the commercial traders by their positioning in gold futures on the COMEX, we would have to say that as of this past Tuesday they are a lot less confident that the price of gold will fall looking ahead.
As I read gold price chart and analyze the action, I see a period of consolidation. My analysis, of course, is not unique. Other better analysts see the same consolidation. Still, I am encouraged to see Gene Arensberg’s analysis of the LCs’ positioning in gold.
Arensberg’s work can be found at www.gotgoldreport.com. He also reviews the LCs’ position in silver. Subscription options are explained on the site.
For silver investors, this will be of interest: Special GGR Excerpt – Silver COT Most Bullish in Eight Years.