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CFTC COTS Analysis July 2021

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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:

  • Managed Money (e.g. Hedge Funds)
  • Producers (e.g. gold mining companies)
  • Swaps (e.g. banks)
  • Non-Reportable
  • Other

This analysis looks at the positioning of the trader categories 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

Current Trends

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, we’ve seen choppy activity that 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:

  • Since June 29, Managed Money has increased net positioning by almost 30k contracts (61k to 90k)
    • The last week was relatively flat
    • Net positioning is still 27k lower than in July 2020
    • This activity probably supported gold prices this July after a sell-off in June
    • Swap was on the other side, increasing net short position by 32k (140k to 172k)
  • “Other” has also become slightly more bullish, increasing net longs by 8% from 101k to 109k
    • “Other” has maintained a bigger net long position than Managed Money over all periods

Figure: 3 Gold Summary Table

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: 4 Gross Open Interest

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

Figure: 5 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: 6 Net Notional Position

Silver

Current Trends

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: 7 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: 8 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:

  • Since June 29, Managed Money has decreased net positioning by almost 12k contracts (33k to 21k)
    • In the latest week, net longs fell by another 6k, down 20%
    • Net positioning is still 27k lower than in July 2020
    • This activity shows why silver has been struggling of late
    • Swap was on the other side, decreasing net short position by 50% over the last month (12k down to 6k)
  • “Other” also decreased their net long positioning by 10% from 11k to 10k
    • Unlike gold “Other” has maintained a smaller net long position than Managed Money over the last year

Figure: 9 Silver Summary Table

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: 10 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 are still well below the peak in 2011.

Figure: 11 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: 12 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/

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