Dear Friends,
Linked below is a set of charts detailing the latest Commitment of Traders reports from the CFTC. I have included some comments on the charts as is my custom but there are several things that stood out enough for me to mention separately.
First of all - - the commercial shorts (the bullion banks) now hold their smallest number of outright short positions in nearly 3 1/2 years. One has to go all the way back to August 2005 to find a lower number. They have liquidated a mind-boggling 220,000 contracts since the beginning of this year but even more importantly, they have covered 190,000 shorts since July of this year. From a peak of 358,802 in July, before the gold market fell apart, they have now reduced their outright shorts down to a mere 167,614 contracts.
Why is this important? It tells us that the selling in the Comex gold market has not been coming from the bullion banks. They have been buying since July. Now they might sell on occasions as the market rallies into a resistance zone and provide the intraday capping but they are not adding to those shorts. Instead they are taking them off immediately as soon as the market begins to sell off.
Who then is doing the selling at the Comex? The answer is provided by looking at the data. The commercial long category has liquidated 52,000 longs since September 9. Lumped within this category are some of the giant index funds. At this point we have no way of knowing exactly how much of the selling in this category is specifically related to the index funds but I would guess that at least 50% of it is. The trading funds have sold out 124,000 of their existing longs since July with the small spec category unloading 33,000 longs over that same period (Note – these numbers are all rounded off). Not to be forgotten, some of the trading funds have gone short.
What we are therefore witnessing is confirmation that the selling pressure in the paper gold market is coming from hedge fund deleveraging and index fund redemption requests alongside of the general public who have been abandoning the commodities sector. How much longer this selling can continue is open for debate but at some point the bulk of the redemption request selling will end as those who wish to get out of commodities will have done so. At that point the paper gold market will bottom. I submit that this will occur at or near the same time that the grain markets put in a concrete bottom. A bottom in the crude oil market will be further confirmation. When these things occur, the commodity markets will begin to trade their own specific set of fundamental factors instead of the one sided selling avalanches that have buried nearly all of them irrespective of their own supply/demand factors. Right now, the dynamic that marks the commodity world is money related selling irrespective of fundamental factors. Simply put – it is all a money game that we are currently witnessing. These things happen fairly regularly in the futures markets although not to the extent and scope that we are now observing. I have seen enough of this sort of action in my trading career to know that eventually fundamental factors reassert themselves but only after the money issues are exhausted.
Trader Dan
Click here for today’s Commitment Of Traders charts with commentary from Trader Dan Norcini
www.jsmineset.com/index.php/2008/11/14/commitment-of-traders-data-from-trader-dan/