CFTC COTS Analysis July 2021

SchiffGold Comex COTS Analysis

Gold longs increase while silver longs decrease.

Exploring Finance https://exploringfinance.github.io/
07-31-2021

This article first appeared on SchiffGold.

Introduction

The CFTC Commitment of Traders (COTs) report is released once a week and shows a breakdown of open interest by trader category. As discussed in the gold/silver pricing analysis, Open Interest can be a major factor in the metal price. The CFTC breaks down open interest by:

This analysis looks at positioning of the traders above compared to price movement. Most analysts focus on the Managed Money group as the speculative money that drives the price. The Swaps generally sit on the opposite side of the Managed Money to provide liquidity as a counterparty.

Please note: the COTs report was published 7/30/2021 for the period ending 7/27/2021. All current data points are as of 7/27

Gold

Managed Money is less than half what it was prior to the market sell off in March 2020 (90k vs 230k in Feb 2020). Producers have also dropped their short position by nearly 100k contracts from 163k vs now net short 56k. While the big price run up (black line) in summer 2020 was not entirely driven by increased long positioning, it does seem that positioning in open interest is having a much larger impact on price in 2021.

Figure 1: Net Notional Position

Below shows the net change in contracts by trader type week over week. Swap is filtered out of this view because it mostly sits opposite the Managed Money to balance to zero. As shown below, May saw large increases in Managed Money long, followed by 3 consecutive declining weeks. Overall, activity has been choppy which may be causing the price of gold to bounce back and forth.

Figure 2: Silver 50/200 DMA

The table below shows a series of snapshots in time. This data does NOT include options or hedging positions. Important data points to note:

Historical Perspective

Looking over the full history of the COTs data by month produces the table below. The chart shows the last run up in price in 2011, followed by the slow fall into 2015 until the new bull market started in 2016. The response to the Trump election (gold sold off hard) can be seen clearly in the sharp drop off in late 2016.

This chart also shows how big the “Other” category has become on the long side. In 2011, Other Long had 8.6B in gross long vs 25B in the most recent period.

Figure 3: Gross Open Interest

The CFTC also provides Options data. This has mainly been dominated by Producers, but recently Managed Money has played a larger role within the market. Still modest compared to the futures side, 23B in long futures vs 3B in long options.

Figure 4: Options Positions

Finally, looking at historical Net positioning shows the correlation of positioning with price. The peaks and valleys in price are mirrored in the Open Interest.

Figure 5: Net Notional Position

Silver

Managed Money is less than one third what it was prior to the market sell off in March 2020 (20k vs 65k in Feb 2020). Swaps have also dropped their short position by nearly 30k contracts from 36k vs now net short 6k now.

Figure 6: Net Notional Position

Below shows the net change in contracts by trader type week over week. Swap is filtered out of this view because it mostly sits opposite the Managed Money to balance to zero. As shown below, Managed Money has been flooding out their long positions in recent weeks after the steady increases in April and May.

Figure 7: Net Change in Positioning

The table below shows a series of snapshots in time. This data does NOT include options or hedging positions. Important data points to note:

Historical Perspective

Looking over the full history of the COTs data by month produces the table below. The chart shows the last run up in price in 2011, followed by the slow fall into 2015. The price collapse in silver in 2020 is clearly visible in this chart.

Figure 8: Gross Open Interest

The CFTC also provides Options data. This has mainly been dominated by Non Reportables, exceeding even producers. Options have fallen off significantly from the spike last July and is still well below the peak in 2011.

Figure 9: Options Positions

Finally, looking at historical Net positioning shows the correlation of positioning with price. Similar to gold, the peaks and valleys in price are mirrored in the Open Interest.

Figure 10: Net Notional Position

What it Means for Gold and Silver

Many long term investors in gold and silver will point to this market as being the main culprit in suppressing physical prices. Paper supply of gold and silver is far easier to create than the physical. Paper shorts can be created to meet longs without having to source the physical metal. This is the nature of all futures markets, not just gold and silver.

While this certainly affects price discovery of the physical metal, like it or not this market does drive the spot price of gold and silver. Unless there is a run on the Comex, the trader positioning shown above will continue to drive prices. It is important to watch the positioning of speculators to better understand the price action.


Data Source: https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm

Data Updated: Every Friday at 3:30 PM as of Tuesday

Last Updated: Jul 27, 2021

Gold and Silver interactive charts and graphs can be found on the Exploring Finance dashboard: https://exploringfinance.shinyapps.io/goldsilver/