CFTC CoTs Report: Froth Leaves the Markets in a Healthy Consolidation

Please note: the CoTs report was published 12/30/2024 for the period ending 12/24/2024. “Managed Money” and “Hedge Funds” are used interchangeably.

The Commitment of Traders report is a weekly publication that shows the breakdown of ownership in the Futures market. For every contract, there is a long and a short, so the net positioning will always be zero, but the report shows who is positioned long or short. Historically, Hedge Funds (Managed Money) dominate the price action in both Gold and Silver.

Gold

Current Trends

Below shows net positioning for the 5 main groups of futures holders. Net positioning reached multi-year highs back in September which was highlighted at the time as a key short-term risk. While the market peak happened a few weeks later, since then, there has been an ongoing consolidation in the market.

Figure: 1 Net Position by Holder

Managed Money is in complete control of the price action, driving prices higher. As shown below, the gold price has climbed in lock-step with the positioning of Hedge Funds/Managed Money except for the last blow-off top to $2800. The previous COTs report suggested the need for the hedge funds to de-lever because they had gotten over-extended.

What is good to see is that their net exposure has returned to levels in June when prices were a few hundred dollars lower. This continues a trend that has played out for years now… the very quick short-term price action is dominated by managed money, but the long-term bull market in gold keeps a floor under prices that keeps rising.

Figure: 2 Managed Money Net Position

Weekly Activity

Managed Money has liquidated positions over the last two weeks going into the end of year.

Figure: 3

The activity in the options market has dialed back some, further indicating that the market has calmed down.

Figure: 4 Options Positions

Silver

Current Trends

Silver total net positioning has not followed the same trajectory as gold. It surged higher back in March and has since failed to get any momentum. This explains why the market has been mostly choppy during that time.

Figure: 5 Net Position by Holder

Just like gold, the price of Silver is overwhelmingly dominated by Managed Money positioning.

Figure: 6 Managed Money Net Position

Weekly Activity

The trend has been liquidation from Managed Money the last several weeks.

Figure: 7 Net Change in Positioning

The options market has cooled some in recent months but still remains elevated. November and December saw a big drop, which clearly shows speculators had been positioned leading up to the election but immediately closed out their positions.

Figure: 8 Options Positions

Conclusion

The table below shows the correlation of price action to positioning for Managed Money and Others (presumably non-institutional). You can see how Managed Money dominates the price action except for 2020. At some point, the price action will not be driven by futures traders, but by physical demand.

Figure: 9 Correlation Table

The metals are currently getting a much needed consolidation as some of the froth leaves the market. It is good to see that prices are remaining high despite major de-levering by Managed Money in both metals. The base is now being set higher from which the next leg up will start from. $3000 gold in 2025 seems like a very real possibility at this point.