COMEX Gold Analysis – Has Gold Bottomed?

Where to look for a clue on the question whether gold has bottomed? The answer is very simple: in the market where the gold price is set, i.e. COMEX gold futures (and silver futures).

We have repeatedly shown the next chart over the last couple of months. The chart basically indicates the potential power of a gold price rally by looking at the rate of change of short positions of commercials. Those positions are represented by the blue bars on the chart. The green dotted lines indicate accumulation of short positions of commercials; the faster those positions are accumulated, the larger the stopping power.


Right now, we are nowhere near a low position of commercial shorts, which suggests there is more downside potential for the gold price.

That brings us to the weekly analysis of the Commitment of Traders Report, which is released every Friday. Ed Steer, editor of the Gold & Silver Daily Newsletter, provides an overview of the COMEX futures market structure and the positions of the market participants.

In silver, the Commercial net short position declined by 5,736 contracts, or 28.7 million troy ounces.  That reduces the Commercial net short position down to 238 million troy ounces, which is still an outrageously high number.  Ted Butler pegs JPMorgan’s short position between 100-105 million troy ounces, which is almost 50 percent of the total amount.  I would guess that Canada’s Scotiabank holds a short position in silver almost the same size as JPM’s.

Under the hood in the Disaggregated COT Report, it was virtually all the Managed Money, as they sold 531 longs—and put on 4,960 short contracts, for a total of 5,491 contracts.  The raptors [the Commercial traders other than the Big 8] happily took the other side of the Managed Money trade, as they added about 5,300 long contracts.  The balance of 400 or so contracts showed up as a reduction in the short position of the Big 4 traders, which would include JPMorgan.

In gold, the Commercial net short position declined by 26,956 contracts—and the Commercial net short position in that precious metal is now down to 14.36 million troy ounces.

Under the hood in the Disaggregated report, the technical funds in the Managed Money category dumped 12,240 long contracts, plus they added 11,605 short contracts—for a total of 23,845.  On the other side, it was the Big 8 and the smaller commercial traders [the raptors] either covering shorts or adding longs.

Both Ed Steer and Ted Butler consider the COMEX market structure as evidenced by the latest COT report not very good. Ed’s estimate is that we still have about fifty or so dollars to the downside left in gold, and maybe one dollar or bit more in silver. However, he adds to it that if the commercials really want to get aggressive, we are nowhere near a price bottom.

That confirms our chart analysis. Gold bulls should be prepared, as there is not enough evidence yet of a final bottom.

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