I missed getting an updated Commitment of Traders report to you all last week due to my vacation plans so this one is a couple of days late but it did contain something which I believe merits mentioning.
Please refer to the chart as you read the comments as it will provide in picture form what I am relaying here with these dizzying statistics.
For analysis purposes, I am referring primarily to the Managed Money category as that is where the big flow of funds comes from that drives markets these days.
The peak of the managed money net long position occurred in October of 2009, when it reached nearly 240,000 contracts. Remember these are NET positions we are referring to here.
Since then that number has declined by almost 90,000 contracts and as of last Tuesday was 149,399 (compared to the peak of 238,943)
The week in October when the Managed Money speculative position was at its height, gold closed out at a bit less than $1,100. Four weeks later when it peaked in price above the $1200 level, the other reportables (CTA’s, big locals and some large individual traders) and the general public had also maxed out but managed money had already been moving lower as they were booking profits into that later buying. That is why open interest continued to increase even as the managed money was moving out.
Here we are now, a bit more than 5 months later with a net bleed-down in the managed money category of 90,000 contracts with gold trading at $1105 the day that the most recent COT report is cut off for the past week. In other words, gold was able to absorb all that selling where hedge fund money was moving out and somehow put on another $5.00 in price over the last 5 months. That is stunning and illustrates how strong the buying is beneath the gold market.
If you look at the drawdown in the both the Producer/User category and especially in the Swap Dealers category, you will see how much buying they did into the Managed Money sell down. They simply could not break the market lower and as physical buying increased, they were forced to cover their shorts at a higher level than they would have preferred. They are running out of bang for their buck in this market.
Gold needs a technical breakout on the charts from its long period of consolidation but that period has cleansed the market of any froth and prepped it for a sustained move higher should it be able to break free of its containment box. Now you can see why the bullion banks are fighting so hard to prevent the technical breakout from occurring. Imagine what another 90,000 net longs being added by Managed Money would do to the gold price.
Click charts to enlarge in PDF format