Ted Butler’s Comments On The Latest COT Report

This is an excerpt from Ed Steer’s latest gold and silver newsletter (subscribe here) in which he quotes Ted Butler’s analysis to his paid subscribers (www.butlerresearch.com):

In silver, the Commercial net short position increased by a chunky 3,676 contracts, or 18.4 million troy ounces.  The Commercial net short position now sits at 110.2 million troy ounces—and off its lows of a few weeks ago by quite a bit.

In the Managed Money category, the traders there covered 6,776 short contracts at a huge profit.  This short covering by the Managed Money traders was all rocket fuel that Ted Butler says won’t be there on the next rally, which may be underway.  The ‘non-blinking’ non-technical funds in the Managed Money category blinked a bit, as they sold 1,652 contracts of their long position.

Here’s what Ted Butler had to say about all of this to his paying subscribers yesterday:

In COMEX silver futures, the headline total commercial net short position increased by a not insignificant 3,700 contracts, to 22,000 contracts total. By commercial category, it was mostly a raptor affair as these smaller commercial traders sold 3,300 additional longs, reducing further their net long position to 26,800 contracts. The big 8 short traders added about 350 new shorts, following weeks of short covering, but the amounts are low enough not to set off the air raid sirens.”

“The “bad” news was that the technical funds, just like the gold technical funds, bought back a chunky 6776 short contracts, torching a good amount of rocket buying fuel. I say bad news with a sense of genuine surprise that the technical funds did what I didn’t think they could do, namely, buy back this many short contracts at very great profit and representing a very big portion (40%) of the new shorts they added since the price top in July. I’ve never seen the technical funds do this previously and certainly not to this extent. Then again, please know that it makes no difference to me if the tech funds best the commercials or vice versa. My gripe is that these two groups of speculators are setting the price.”

“Offsetting the bad news is the very good news is that it has been mostly raptor [Commercial traders other than the Big 8] selling of long positions behind the technical fund short covering almost to the contract.  Since Oct 28, the technical funds have bought back 15,000 contracts of the 38,000 new shorts they added from the top in July and the raptors have sold a bit over 15,000 contracts. The loss of buying power was completely offset by the loss of selling pressure. This balances out the COT structure in a way I never imagined would occur.

In gold, there was a slight reduction in the Commercial net short position of 2,512 contracts, or 251,200 troy ounces.  The Commercial net short position now stands at 6.85 million troy ounces.

Under the hood in the Disaggregated COT Report, the Managed Money covered 11,617 shorts for big profits—and the ‘unblinking’ non-technical funds in the M.M. category also peeled off 5,567 contracts of their long position.

Here are Ted’s comments on gold:

In COMEX gold futures, the total commercial net short position (the headline number) was reduced by 2,500 contracts, to 68,500 contracts. This is still a very low commercial short position and since there is no compelling evidence to the contrary, this bullish structure was most likely the catalyst behind today’s price surge. It was mostly a Big 4 short buying affair, as these traders bought back a little over 4,000 short contracts.

Oddly enough, considering the commercials were buyers on balance, the technical funds in gold did buy on balance as well, including the hefty buyback of 11,617 short contracts, but they sold 5,567 longs to somewhat minimize the loss of short covering rocket fuel. This week, the traders in the other reportable category (of the disaggregated report) were the big counterparties to the commercials. Back to the commercials, JPMorgan appears to have liquidated another 4,000 long gold contracts, to perhaps less than 14,000 gold contracts net long, but it’s getting really hard for me to tell because JPM’s position is so small (I think by definite intent).

As I said, this above information is very nice, but has all been wiped out by Friday and Monday’s price/volume action.  Hopefully this Friday’s COT Report—and companion Bank Participation Report, will add some clarity to the current situation.

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