Open interest (futures & options) watch for gold silver

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Well, what we’ve seen in the COT is interesting because over the last six weeks when we look at the gold COT, that hedge fund category has covered a remarkable 20,000 short contracts. They’ve lifted those short positions off, and in the process of doing that you have had strong buying by what we call the other ‘large reportables.’ Those are the guys we talked about last week that had such a big change in their composition (on the COT).

They (large reportables) have moved aggressively to the long side in the gold market, and their bet paid off big-time because they were obviously positioned quite well for the lift higher this week. And really the hedge funds were caught holding the short end of the stick here because they had a large amount of short covering.

The point of this is that it looks like this week, between the short covering and the blast through overhead resistance on the charts, tells me that there has been a fresh influx of hedge fund money coming into this market. The speculators are coming back in (to the gold market as well). This is the one thing this market has been missing for a sustained move higher.
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COT report covers trading up through January 27th. Some interesting things are happening in the reports this week.

During the coverage period, the gold commercials net position fell, but mostly because the commercials sold -25k long contracts – a huge change in just one week. They also closed -5.7k shorts. Commercials selling longs, especially in such size, is quite unusual at this point in the cycle. What’s more, commercials generally increase shorts as the gold price rises. Managed Money net position increased; they bought +11.7k longs and closed -4.7k shorts. This is a more normal result.

The commercials dropping gold longs AND shorts in this way definitely got my attention: is there less producer hedging at these low prices?

Are commercials bailing out of the COMEX casino before it burns down? There are several interpretations we could put on it, but the selling is helping to cap the gold price. But this time its not the much-talked-about naked short selling, its just the commercials leaving the market, both long and short. I’d expect this sort of thing to happen prior to a COMEX default…not saying one is impending or anything, but the commercials are the insiders, and I’d definitely expect them to flee before it exploded. I’m going to be watching this a whole lot more closely going forward. This was a big change, a big unexpected change, and it doesn’t make sense given where we are in the cycle.
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