COT Report Points To A Meaningful Gold And Silver Rally

The latest Commitment of Traders Report for futures positions held at the close of trading on Tuesday March 17th 2015 is very encouraging. We can easily conclude, based on the data, that the current setup in futures positions point to a meaningful rally, at least in the short run, in both gold and silver. In other words, the selling in the ongoing cycle seems to be behind us, and a new short to mid term cycle should have started last week.

To back up our thesis, we are looking at the rate of change of short positions of commercials in the COT report. We have used this time and again, so far each time with success. We have pulled up the gold COT chart (courtesy of Goldchartsrus, annotations on the chart are ours). Look how each price rally, indicated with the green dotted lines on the first pane, has come with a meaningful change in short positions by commercials (blue bars on the second pane). The key is to focus on the rate of change; it determines the stopping power of a rally. The faster the short positions accumulate, the higher the probability that the rally will be short lived. The points of comparison are obviously previous rallies and price declines.

gold_COT_20_march_2015

 

At present, the commercials hold a very low amount of short positions. Compare their short positions today, i.e. the last blue bar on the second pane, with similar positions in the past. Mind how those positions have coincided with at least short term bottoms, sometimes even mid-term bottoms.

Below is an excerpt from Ed Steer’s newsletter (subscribe here). It provides a more detailed analysis on the figures and the changes in the last COT report.

In silver’s COT report, the Commercial net short position declined by 3,053 contracts, or 15.3 million troy ounces.  The new Commercial net short position stands at 151.0 million troy ounces.   We’ll never get near the 70-ish million troy ounce low of last November again.

The Big 4 traders reduced their net short position by about 1,000 contracts—the ‘5 through 8’ big traders actually added around 2,200 contracts to their short position—and the balance of the Commercial traders, Ted Butler’s raptors, added another 4,300 contracts to their already large long position.  Ted pegs JPMorgan’s short position at the lower end of the range that he gave a week ago—and that was 13,000 contracts.  Don’t forget the JPMorgan is no longer the big silver short on the COMEX.  That title now belongs to Canada’s Scotiabank.

Under the hood in the Disaggregated COT Report, the technical funds in the Managed Money category added a very chunky 5,035 contracts to their already large short position—and the ‘unblinking’ non-technical fund longs in the Managed Money category added another 1,002 long contracts.  Like I said last week—“‘Who are these guys?”

In gold, the Commercial net short position declined an eye-watering 32,852 contracts, or 3.29 million troy ounces.  The Commercial net short position is now back to almost where it was in early November, and that is 5.65 million troy ounces.

The Big 4 traders in gold actually added about 800 contracts to their current short position—and the ‘5 through 8’ traders covered about 10,000 contracts of their short position—and Ted Butler’s raptors added around 21,700 contracts to their current long position.

I would bet money that this report represented the bottom of the price barrel from a COT perspective in all four precious metals. Without doubt there’s been a fair amount of deterioration in the Commercial net short position since the cut-off, especially after yesterday’s price action.  Ted Butler is hoping that its the raptors doing a lot of long selling for profit—and that JPMorgan is buying as many of those contracts as they can.  We’ll know next Friday.

 

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