Open interest (futures & options) watch for gold silver

PMBug said:

Nice. I used to read Harvey Organ's blog every day to keep up with this stuff. I started slacking off when I started doubting how the reports/system really has any bearing on reality. The silver doctors also do pretty good work highlighting bizarre discrepancies/movements in the COMEX reports. I haven't really been paying attention to the reports lately, so your post here is a welcome kick in the pants. Information, even if flawed, manipulated or deliberately misleading, empowers understanding.

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When asked about silver specifically, Embry responded, “Silver is a more volatile version of gold, and once we get through this agony, silver will explode to the upside. It is worth noting that some people, looking at this amazing blowout in open interest, are very concerned there will be a raid in silver once again.
There could be an attempt to knock the price into the mid 20s before the next leg higher begins. That’s entirely possible. When you are dealing in a market that is this manipulated on the paper side, anything is possible. If that were to happen, it would be an even greater buying opportunity. I’m always nervous when I see massive blowouts in open interest because generally they are setting the market up to take it to the cleaners.”

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cftc - managed money short positioning high for gold, silver
•could be 100 octane rally fuel for precious metals.
southeast texas – taking a break from the grueling, demanding and intense quest for things with fins and scales for a half day* today, we thought we would share with everyone a couple of the more interesting charts which surfaced in the latest commodity futures trading commission (cftc) commitments of traders report (cot). the report was released friday, may 18, with data as of tuesday, may 15.
according to the cftc, as of tuesday of last week, large traders the cftc classes as managed money (“mms,” hedge funds, commodity trading advisors and other funds that trade futures on behalf of others), increased their short positions in gold futures by 9,837 contracts to show 32,822 contracts short. That is the highest pure short position for the “funds” since september 16, 2008, during the height of the 2008 panic with gold then in the $770s. One week later, on september 23, gold closed at $891.90, about $122 higher as the mms covered or offset more than 20,000 of those short positions (not a misprint).



source for all graphs cftc for cot data, cash market for gold and silver.

very high pure short positions for the usually net long managed money traders very often correspond with important turning lows for gold. To confirm that notion simply look at the graph above and note that the spikes to the upside for the blue line (short positions) often correspond closely with bottoms in the pink price of gold.

the graph above is in part why we say that large mm short positions are “100-octane rally fuel” for the price of gold. the typically long side of the battlefield likely uses short positions to temporarily “hedge” existing long positions they do not wish to close. Their short positions are just like any other shorts, they have to be covered (bought back) at some point prior to expiry. Higher short positions are “buying pressure in a bottle” more or less.
remember that the positioning above was on tuesday with gold then trading in the $1,540s. Gold has indeed advanced since then and is currently trading in the $1,590 region as we write on monday, may 21, 2012.
that high short position is in part why the managed money no-spread net position shows the lowest net long positioning (80,098 contracts) since december 16 of 2008 (73,332 contracts net long then with $858 gold). On tuesday managed money traders were the least net long gold futures since the global panic of 2008 in other words.

so, to conclude this brief look at the managed money gold futures positioning, it’s pretty clear that “the funds” decided to “hedge” their long trades by adding shorts up to last tuesday. with gold moving back to the upside, we can expect with little doubt, that the mm’s pure short positioning will be considerably lower and their net long positioning will therefore be higher in the next cot report. the only question is by how much. That is, of course, unless gold does something weird by the close tomorrow, tuesday, the cutoff for the next cot report.

similar story for silver
turning to an interesting graph for silver futures, take a close look at the graph below and, given what we just shared about gold futures, answer the question: What does this high pure short positioning by the usually net long “funds” mean?



well, what it usually means is that silver is getting close to a bottom if history is any guide. to quantify the chart above, managed money reported an increase of about 3,700 new contracts short over the past two reporting weeks, to show a relatively high 12,518 lots short, with 3,334 contracts of that increase coming in the may 8 reporting week with silver then closing at $29.43.

that is actually the highest pure short positioning for the “funds” since the september 16, 2008 report (arrow), when they showed 13,171 short contracts with silver then at $10.48. one week later, on september 23 silver closed at $13.26, but the funds only covered 1,538 of those short contracts. That was an ill omen that the funds did not cover more of that short position then and indeed silver was not yet done with its waterfall panic, rush to liquidity plunge. By late october silver was back under $10 and did not forge a sure-enough bottom until the beginning of december, 2008. Interestingly, by the time silver did indeed make its seminal turning low in december, the mms had pared their pure short positions down to just 5,384 lots on december 9. )

the high short position for managed money traders is in part the reason that their collective net long futures positioning was so low in this may 15 report. As shown in the chart below traders the cftc classes as managed money reported holding a combined net long position of just 5,703 lots – not very much higher than the 4,752 contacts net long they reported at the end of 2011 in the december 27 cot report with silver then at $28.67.



as should be clear from the chart above, when the combined net long position for managed money traders (blue line) reaches the lower limits of the chart it often corresponds with lows in the price of silver.

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Sure enough, since Tuesday silver briefly tested a $26 handle before catching a bit of a bounce. Silver is currently trading in the $28.30s as we write (a little above the May 15 cutoff of $27.69) and it will be extremely interesting to see if the “funds” have seen fit to begin covering some of those “temporary hedges,” and if so, how many of them.



Silver is testing “The Green” or the area we have been looking for support to show. We strongly suspect the MMs are covering some of their shorts, opportunistically, but we, like everyone else, will have to wait until the Friday release of the COT for confirmation of that notion.
Meanwhile, in a contrary sense, the COT data suggests that gold and silver are very close to a bottom, if one has not already been put in last week. In part because of the data shown above, yes, but also because of the positioning of the usual Big Hedgers, but that story will have to wait for another time. We have run out of “break time” and have to get back to our grueling, demanding and intense quest for things with fins and scales…
As we send this off to be posted we note that the AMEX Gold Bugs Index or HUI is up about 2.5% to the 405 level, and there has been little in the way of meaningful retreat for the precious metals on an up day for the Big Markets.
That just might be some continued short covering underway – into dips. If so, it ought to be visible in the next COT report and would be an unmistakable signal to traders and speculators who follow the COT data consistently.
Hold down the fort, help is on the way…
*We are between fishing events, but on relatively “low power” personally.

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Most Important Silver COT Chart for 2012

Mr. Arensberg wanted me to share with you-all the chart below, which he says is the “most important chart for the CFTC commitments of traders (COT) data for silver so far in 2012.” Gene already commented on the very bullish positioning in the Vulture subscriber charts over the weekend, but he wanted a visual representation of it available.

The chart is of the short positions by the traders the CFTC classes as “Managed Money,” including hedge funds, Commodity Trading Advisors (CTAs) and other funds that trade futures for clients. They are normally on the long side for silver futures, but over the past couple months they have been adding more and more short positions up to a new record high for the entire disaggregated COT report data going back to 2006.

Here is the chart:



Source: CFTC for COT, Cash Market for silver.

As of Tuesday, July 24, with silver at $26.93, Managed Money traders held the highest ever number of bets that silver would fall in price (17,575 short contracts).

Continued…
The high Fund short position is a big reason that the Managed Money net long position is so very low, at just 3,015 contracts. Their shorts offset a slightly higher number of longs. Here is that graph:



That is a very, very small net long position! And, if you believe like we do, a very low Managed Money net long position means there is a lot of buying horsepower sitting on “go” for when the Funds think a new rally is getting underway.

Mr. Arensberg is convinced that the Funds have built up that record high short position as a kind of insurance – a “just in case hedge” to protect them if silver broke down through the super-important long time technical support level of $26. (But silver did not break down through $26, did it.)

He believes that if silver were to move back higher, up through about $28.50 or maybe $29 or so, the Funds would be quick to buy back those short bets on silver – because it will have broken out of a bottom consolidation pattern.

What is more, once it is clear that the Funds have started closing out all those record high short bets, all the regular traders on the N.Y. COMEX will be trying to front run that short covering, sort of like switching on an afterburner. Then, when that is going on the other shorts might be trying to take profits, buying back their shorts all at the same time with the algo traders trying to jump on it for the ride.

“It could be an explosive move if that happens,” Gene said. “We could even see an offer vacuum for a little while, which we have not seen since January,” he added.

An offer vacuum is the opposite of a bid vacuum. They occur when many traders suddenly pull all their offers because the price is going vertical.

Gene isn’t predicting it as such, but he says it is definitely something to keep an eye out for and silver is not that far under where the fireworks ought to start, currently at about $28.

All I can say is … it’s about time for a silver reversal, isn’t it?

Colette Chapman for Got Gold Report

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swissaustrian said:

Found these great long term charts on gold and silver COT data in relation to spot prices. ...

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Ted's thinking on this is radically different. First of all, instead of covering short positions during the reporting week, JPMorgan added another 2,000 contracts to their already obscene and grotesque short position, which now sits at a bit more than 33,000 contracts. The small traders decreased their long positions and increased their short positions on that price decline...which is precisely what one would expect of them. But the big surprise was that the brain dead technical funds increased their long position by 3,711 contracts, instead of reducing it...which is NOT the action that one would normally expect on a week over week price decline. Ted is speculating that a surprise buyer shows up in the Non-Commercial category...and this forced JPMorgan et al to short massive amounts of the metal in order to prevent the price from blowing up.

I sure hope he's right...but I will be waiting to see if there is any corrections made to the silver portion of the COT Report as the week progresses.

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In the delivery schedule for gold we lost some gold to the avarice of Blythe Masters but not much as 42.1 tonnes of gold still stands for delivery. You will recall previous months that after first day notice, the first few days we witnessed a considerable drop in gold ounces standing. Not this month!

Dave from Denver noted that in Shanghai a total of 31 tonnes of gold stood for delivery Thursday night.
If you add the comex gold to Shanghai delivery gold we have 73 tonnes of gold standing which represents almost 40% of annual gold production. It seems to me that the physical markets are truly on fire!

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swissaustrian said:

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Now switching over to silver, the picture is completely different. Open interest has continued to rise. Commercials have increased their shorts by 6% and specs put on 10% more longs. It looks like a showdown between these groups is in the cards. Sadly, usually the shorts are winning these fights, ie silver might be up for a correction. Also note that the swap dealers haven't changed their net positioning in silver at all.
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John Embry said:

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The open interest in silver continues to amaze. We are just not seeing a clean out in the open interest in the silver market, even when the price is driven lower.

I believe we may be finally approaching a commercial signal failure where the shorts get overrun. This is a moment all of the silver bulls have waited for, and even though it hasn’t happened yet, I think we are setting up the pre-conditions for just such an event.”
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PMBug said:

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Gold market report: spike in banks' net short silver position
2013-FEB-15

Silver bars Last Friday night (European time, 8 February) the Bank Participation Report for 5 February was released. This showed that US banks reduced their net short gold position by 12,886 contracts over the month of January, while non-US banks increased theirs by 2,887 contracts. This is evidence that the US banking community is aggressively closing its short positions. A little of this was picked up by the non-bank commercials (mostly mines, refiners and processors) whose net shorts increased by 6,512 contracts to 56,573.

In silver they were unable to close down their positions – the US banks increasing their exposure by 7,956 contracts over the month. The non-US banks increased their short positions by 457 contracts, representing over 42 million ounces between them to give a total short position of 277,810,000 ounces, the second highest on record.

The two charts below show the contrasting positions for US banks in gold and silver.

We can be sure that the massive short position in silver is causing difficulties for the banks concerned, because of the lack of physical supply. Therefore, the bullion banks have an exposure which appears to be out of control. While they frequently conduct bear raids (which are more successful in gold) they face the risk in silver of themselves becoming victims of a bear squeeze. Unusually, they have got themselves into this mess on a low silver price, and it is roughly double the short position than when the silver price was over $40. This being the case, when silver turns up the banks are likely to be very badly squeezed, throwing up enormous losses. Meanwhile, the non-bank commercials have kept a level head and reduced their net short position by 2,268 contracts to 3,616.

It is against that background that gold and silver prices declined this week, with gold falling about $30 to $1,630 level, and silver by $1.50 to around $30.25. Given that the bullion banks are trying to close down their positions, one would expect open interest to fall. Instead they have both risen, gold by over 25,000 contracts and silver by 2,936 contracts, indicating that buyers are taking the opportunity to accumulate at these low prices. We look forward to next week with interest.

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Harvey Organ said:

... In silver strangely the CME reported a gain of 1417 contracts up to 154,364. We are now at a two year record high in silver OI with a lower price in silver ($29.86 today vs $49.00 in April 2011), In gold, the bankers are getting their way as the OI has fallen to 442,000 contracts. Earlier this year it hit its low point just below 400,000. In June 2010, it hit it's all time high of 603,000 contracts. The problem this time for the bankers is that the silver OI is ramping higher while the OI in gold is being crushed. Why? it seems that physical silver is becoming scarce and producers are hoarding the metal (see below). ...

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Monday, February 18, 2013
Gold COT Imbalanced, Becoming Bullish

Changes in gold futures positioning of the largest reporting traders very interesting and have now become contrary bullish.

SOUTHEAST TEXAS – Changes in the positioning of very large traders of paper gold futures in the most recent Commodity Futures Trading Commission (CFTC) commitments of traders (COT) report (February 15 for data as of the 12th) are important and very unusual.

As Got Gold Report Subscribers (Vultures) already know, because of our commentary directly in the linked technical charts, the aggressive sell down this past week (Gold -$57 to $1,609 and Silver -$1.59 to $29.76) was not, repeat not, fueled by aggressive selling by the Big Hedgers or bullion banks (contrary to repetitive uninformed or misinformed bloggers who, embarrassingly, try to fit everything into a single bank-hating theory).

Instead, with gold-buying China out of the market this past week for their New Year holiday, Japan out part of the week, an earthquake of sorts caused by long-only pension funds announcing an exit from commodities (well after the fact for many of them we might add), media focus on two or three high profile actors who sold positions in SPDR Gold Shares (GLD) (Soros, Bacon, et al, back in Q4 of 2012, but only announced in Form 13 filings this week) ... and with The Big Markets still showing surprising strength, the selling pressure on gold comes not from the bullion banks or the hedgers they trade for, but from Managed Money – the trend following Funds and the investors they trade for.

As the data will show in just a moment, we have reached a point where the positioning of the largest traders of gold futures is very imbalanced. The setup is practically begging for a massive, very violent reaction just ahead.

We only very rarely see this kind of imbalance, but when we do it can get pretty dangerous for traders on both sides of the battlefield for a very short period of time. Huge elephants, capable of buying/selling and influencing hundreds or even thousands of contracts in minutes, are battling it out now in the futures – and in the OTC physical and forwards - and we mice need shelter until the battle has declared a new victor. Having been profitably stopped out of gold futures last month, we watch the battle underway from the safety of a “sideline cave!”

To understand what is going on we first have to see where the traders were positioned as of the close on Tuesday, Feb 12. (Gold closed $1,651.07 already down $21.66 or 1.3% from the prior COT week. Silver $31.09, down $0.70 or 2.2%.) So the sell-down was already well on its way and the bears had the ball then. Recall that was the second day of China being mostly out of the physical gold market. Never forget that futures answer the physical market, not the opposite.

As the data will show, what we have is one of the rare instances when the usually long Funds (Managed Money) have taken an unusually large (actually record large) short position even while maintaining significant long positions. As the data will also show clearly the usually short Producer Merchants, the natural hedgers and the bullion banks they trade through, have not increased their hedging and instead have seen fit to have a very low level of hedging with gold having fallen to the $1,650s. We suspect that the very smart hedgers are even less hedged now with gold having blown through stops to test $1,600.

The growing selling pressure finally broke through the level where a large number of stops had accumulated on Friday, giving the Funds an unusual short term victory – on the short side.



The normally mostly long Funds have engineered a short term play normally attributed to the guys on the other side of the battlefield. Namely, they just pulled a short raid on gold. The Big Irony is that despite the obvious and clear data to the contrary, one particular camp out there will continue to blame the bullion banks for this sell down.

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swissaustrian said:

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Summary: BUY now!
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swissaustrian said:

COT data as of Tuesday 19th is out. Remember: gold was at 1604 and silver was at 29.45 then. The real capitulation happened on Wednesday, so the market is probably even more cleared of weak hands by now!

As one would expect, NET postioning of all categories of traders changed dramatically.

First gold: Commercials (producers + swap dealers) are now NET short only 131000 contracts, ie there's not a lot of hedging going on. Speculators were really slaughtered, reducing their net long position by a monstrous 33%. Totally strange is the fact the open interest changed by ZERO. You've seen the changes in postioning and in the end the exact same number of contracts is outstanding. What's the probability of that? I say ZERO. This number makes the whole dataset appear extremely questionable.
Anyway, the positioning of the paper market is now extremely bullish. Historically strong rallies followed such scenarios.

Moving over to silver: As I wrote last Friday and several weeks before, silver paper positioning wasn't that contrary bullish. The new data shows that the situation has gotten significantly better, but it still isn't as extreme as it is in gold. Commercials have covered their net short postion significantly. However, the swap dealers have contributed unproportionally much. This means that their counterparties in the over the counter market have put on tons of new shorts. Silver swap dealers are now net long, ie the otc market is net short! If these otc shorts get caught on the wrong side of the trade, they'll be burned in a short squeeze.
The speculators have also been slaughtered in silver, reducing their net long position by a whopping 30%. They're still not a total capitulation levels as of last Tuesday: http://www.pmbug.com/forum/f13/open-interest-futures-options-watch-gold-silver-679/#post12329. Open interest in silver has risen again which just shouldn't happen during a crash. I have no explanation for that.


Summary: BUY now!

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