Thursday, September 10, 2009

Gold COT Analysis (as of Sep 1)

I've decided to start an ongoing analysis of the GOLD and USD Index futures market (may look at other markets as well). Here are some charts to help us understand the Gold COT report issued Sep 4 for positions as of the 1st. The COT is
data compiled by the CFTC each week from all the firms reporting "large" positions in the futures market. It's broken down by non-reporting (small speculators) and reporting (large speculators and commercials). Commercials are generally hedgers, like mining firms who want to lock in prices; Non-Commercials are generally large speculators. Firms can have both commercial and non-comm divisions.

(The chart below breaks down the COT between 1986 and present. Grey is non-reportable; red is non-commercial; blue is commercial; black is non-commercial spreading; total is the open interest.)

(The chart below compares the price of gold(weekly - a.m fix), open interest, a 12 period(1yr) moving average of open interest, and the net commercial position)

From these charts we come to mixed conclusions about the structure of the gold futures market. It is clear that there is a large speculative long position in the metal, similar to the highs of recent run-ups during this triangulation period.Net-commercial short positions have increased to a level that should send warning signs to the bulls (the commercials are usually right) but if Gold is going to make its big breakout this wont stop it - we saw similar levels during the early stages of the 08' breakout. A more bullish sign is the significant reduction in O/I that has occurred since the last run, primarily from a large drop in spread positions; again if Gold were to break we could see O/I run up to 650-750k.

Update: I've added a chart showing the gold price(black) vs concentrated positions. The red/orange line shows the % of O/I held NET SHORT by the 4 largest traders(net short); the green line shows the % of O/I held NET LONG by the 4 largest traders(net long). This shows you what the most "powerful" players in the market are doing. I'll improve on this chart when I do an update on the next COT release.