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The gold commercials reduced their net short position (futures & options) by 11,716 contracts in the latest week, which was the largest bout of covering since the week ended March 14, 2006. After adding to their short position during last weeks price crash any news of covering is positive news for bottom dwellers.
The commercial net short position has not contracted as sharply as it has during previous selloffs and bottoms, but at least last weeks covering period has put the trend back in the right direction.
As for CBOT stealing some of COMEX’s thunder, the Financial Times said this week that “The CBOT gold futures contract now accounts for about 9.5 per cent of the total US gold futures market.” Although FT is right about CBOT stealing some of the action, the 9.5% figure is wrong. Looking at gold futures only, CBOT open interest jumped to a high of only 8.87% in recent weeks, and CBOT open interest n gold futures and options only reached a high of 7.02%.
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Because the CBOT market is so small it doesn’t deserves as much attention as COMEX. Nevertheless, the commercials currently control 11,147 short contracts on CBOT (futures & options), or more than 42% of the total open interest. In short, even though a more competitive marketplace could be good news for the average investor, looking at the CBOT numbers does not provide any comfort to bottom dwellers.
If 1-week of COT data can be taken as the gospel, my $500 an ounce speculation earlier this week could prove a little pessimistic. After all, it is much easier to speculate about a potential bottom in the gold market when you think that the commercials are covering their short position when prices are falling.
But hold on, next week is the Fed, and gold’s seasonal weak trading period is right around the corner. Maybe we do have one more sell off left?
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