trader Dan commentaryPosted: May 08 2010 By: Dan Norcini Post Edited: May 8, 2010 at 2:19 am
Filed under: Trader Dan Norcini
Dear Friends,
This week’s Commitment of Traders report details what we have cometo expect with gold for the most part but with one exception whichmerits mentioning.
Front month gold closed at $1162.20 on Tuesday of last week (April27, 2010). It went on to make a high of $1192.80 on the followingTuesday of this week (May 4) before settling lower on the day at$1169.20.
The translation – the COT report covers the time period during whichgold added $30 to its price before a wave of selling shaved off most ofthose gains when the reporting period came to a close.
If you look at the COT data, the Managed Money side of thingsincreased their net longs over this time frame by approximately 3,400.The other large reportables increased their net long position byroughly 6,100. The public increased their net long stance by 1,000contracts.
The Producer/User/merchant increased their net short stance by about 11,500 as usual absorbing all of those buys.
Here is where it gets a bit interesting. The swap dealers who arealmost always net short in gold, actually DECREASED their stance byapproximately 950 contracts. That means they were net buyers on theweek.
I am not quite sure what to make of this as of yet and want to seeanother week’s worth of data but this is a bit unusual behavior forthat camp. These banks who originate the swaps and who then look tohedge those generally tend to mirror the funds only in the inverse,selling when the specs are buying and buying when the specs areliquidating longs. As a general rule, they tend to move in sync withthe Producer/user/processor/merchant category as can clearly be seen onthe chart. I want to add this is not the case in many other markets butdefinitely it is the rule in gold.
While the latter category is not that far off from its peak netshort position (8,400 or so to be a bit more precise), the Swap dealersare nearly 20,000 shy of their largest net short position.
The funds are approximately 24,800 shy of their largest net long position.
Obviously there is still plenty of room for the specs in which to play.
I want to monitor this especially now that gold has taken out $1200to see what these swap dealers did the last three days of this week.Unfortunately that will have to wait until next week’s release of theCOT data.
Again, there is no hard, fast rule set in stone which states thatthe players cannot exceed these levels. Indeed, when gold really getscranking these levels will be eclipsed by newer and even higher ones ashas occurred throughout the entirety of this now decade long bullmarket in gold.
Click chart to enlarge this week’s COT data in PDF format with commentary from Trader Dan Norcini
