It was slightly mysterious why speculators apparently had only liquidated a little bit of their positions on a net basis in the week gold suffered its ‘mini crash’. Some people have suggested that there was perhaps a problem with collating the data in a timely fashion, as the positions were evidently altered quite a bit in the following week. On Friday, the CFTC published the new commitments of traders report showing the situation as of Tuesday last week.
On the surface, it appears as though speculators were liquidating, respectively re-shorting gold and silver in a week when prices rose quite strongly from the crash lows made overnight on Tuesday the week before. It is actually unfortunate that we cannot be 100% certain that this is what happened, as it seems at least possible that the above mentioned data collection problems may be behind this curious development (we have no indication that such problems actually occurred – it is an idea that was mentioned inter alia by Steve Saville this week and it seems to us that it may have merit based on our experience with the legacy CoT data and how they normally behave).
It is unfortunate because it would have been quite normal for this to happen in the week of the crash, but it is rather unusual for it to happen when prices rise. Be that as it may, since there has been an unusually large change in the data, we want to show these changes and offer our interpretation.
First let us take a look at gold itself. Following is a 30-minute chart showing the action over the past week, and then a daily chart that shows where and when exactly the post crash low was made.
Gold, 30 minute chart. The latest CoT report’s cut-off date is Tuesday April 23 – so the changes in the report are supposed to have occurred between the day the intraday low was made (April 16) and April 23. Gold rose by nearly $100 during this time – click to enlarge.
The daily chart of the June 2013 gold futures contract – a low just below the level of $1,330 per ounce was established in overnight GLOBEX trading on Tuesday April 16- click to enlarge.
Before we get to the CoT report data, we want to quickly mention why we concentrate on the aggregated futures only legacy report. There is for one thing the matter of continuity – since we are used to the legacy report, it is easier for us to interpret it. The main difference between the legacy and the disaggregated report is that the latter breaks out the actions of swap dealers and producers/merchants (which together make up the ‘commercial hedger’ category) , as well as ‘managed money’ and ‘other’ big speculators in the big speculator category. Note that to some degree, these classifications overlap. A merchant can e.g. also engage in swaps or enter a speculative position.
It is certainly useful to look at the disaggregated report as well, but generally speaking, there is no big difference in terms of the signals given by the two types of reports. The reason why we exclude options from the analysis is that one can engage in four different types of positions in options: long or short puts and long or short calls. If one only knows that someone is ‘short’ or ‘long’ options, one does not actually know whether they are positioned for a rally or a decline. Someone short puts is e.g. bullishly positioned, while someone short calls is bearishly positioned. Since these details are not made clear in the combined futures and options report, we rather concentrate on futures only.