CFTC: Swaps Have Increased Gold Short Position by More than 1,300% since Nov 2015

Since the peak on March 8, Managed Money has reduced its Net Long positions by 60k contracts or 43%. Despite massive selling, the gold price has actually held up fairly well. The last time Managed Money net longs dropped this low in February, gold was struggling at the $1800 level, versus the struggle at $1900 now.

Please note: the COTs report was published 4/29/2022 for the period ending 4/26/2022. “Managed Money” and “Hedge Funds” are used interchangeably.

GOLD

Current Trends

It’s hard to see clearly in the chart below, but Swap Net Shorts reached the highest level in two years on April 12 (more on this below).

Figure: 1 Net Notional Position

The chart below focuses on only Managed Money. It shows how closely the price of gold follows the activity of Managed Money. The chart shows how Hedge Funds have been dumping gold consistently for nearly two months.

Figure: 2 Managed Money Net Notional Position

Weak Hands at Work

The weekly chart makes this even more clear. Managed Money net longs have fallen in 7 of the last 8 weeks, with the last two weeks seeing significant selling pressure. It shouldn’t be a surprise to see gold under such pressure given the massive selling by Hedge Funds.

Figure: 3 Silver 50/200 DMA

The table below has detailed positioning information. A few things to highlight:

• Managed Money net longs are down 20% in the last week alone
  • Gross Longs fell by 12.3% in the last week while Gross Shorts increased 1.4%
  • Over the month, Gross Shorts increased by 50%
  • Three years ago, Managed Money was at a net long of only 76 contracts
• Swaps have increased their Net Short position by 450% over three years
  • Gross Shorts are up 104% over that time while Gross Longs fell by 15.6%

Figure: 4 Gold Summary Table

Historical Perspective

Looking over the full history of the COTs data by month produces the chart below (values are in dollar/notional amounts, not contracts).

Two major takeaways:

• Other Gross Long has increased more than 3x since 2019 ($9.5B in May 2019 vs $32B in the latest period)
• Swap Gross Shorts are 14x larger now than they were in Nov 2015 when gold bottomed (-$4B vs -$56B)

Swap Short has come in to meet the growing long contracts and has increased their Gross Short exposure by many magnitudes. On a net basis, Swaps were long by 30k contracts in November 2015 versus now being short 205k contracts!

Swaps generally sit on the other side of the Managed Money long group to meet the demand of the longs.

Figure: 5 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. The current period shows Managed Money Net Longs increasing from $2.4B in November to $3.5B in April.

Figure: 6 Options Positions

The final chart below looks at net notional positioning against price over a longer time frame. As mentioned, while the correlation of Managed Money is strong, it is not perfect. The long-term bull market continues despite the volatile gyrations of Managed Money positioning.

Figure: 7 Net Notional Position

SILVER

Current Trends

Silver saw a major collapse in Managed Money Net Longs in the latest week. Net Longs fell from 40k to 26k or 35%.

Figure: 8 Net Notional Position

The chart below more clearly shows the massive drop. The 14k reduction is only slightly smaller than the 15k weekly reduction seen on February 1st. Other and Producer Longs were much smaller than Feb 1.

Figure: 9 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:

• Managed Money Net Long MoM is down 37% and down 27.8% YoY
  • MoM was driven entirely by increased short bets as Gross Shorts increased 50% even while Gross Longs increased 6%
• Other Net Longs is up 47.5% over the month, but this represents only 3k net contracts
• Swap net Positioning is down with Net Shorts falling 50% over the month from -18k to -9.5k
  • This was driven by a combination of increased Gross Longs (3k) and a fall in Gross Shorts (6k)

Figure: 10 Silver Summary Table

Historical Perspective

Looking over the full history of the COTs data by month produces the chart below. Unlike gold, the “Other” category has remained surprisingly stable over this time. The chart also shows the mass liquidation that occurred in March 2020.

Figure: 11 Gross Open Interest

The Option market is significantly smaller than gold with Non-Rep dominating the group with $200M long and $122M short. The next biggest long is half the size with Producers running at -$109M and Other Short at -$55M.

Figure: 12 Options Positions

Finally, looking at historical net positioning shows the correlation of Managed Money positioning with price. In the smaller silver market, the swings are far more volatile than seen in gold.

Figure: 13 Net Notional Position

Conclusion

Based on the correlation table below, there is no doubt about the influence of Managed Money on the price of both metals. They tend to push and pull the price around very erratically.

Figure: 14 Correlation Table

Hedge Funds have been dumping gold aggressively for weeks and yet the price is holding up okay. Is it possible this reverses after the Fed meeting this week? Maybe. The 50bps “rumor” will become “fact” which can sometimes mark a bottom in the market. Expect the Fed to ignore the negative GDP print (for now). If it happens again in Q2 though, the Fed may begin to pivot.

When Hedge Funds re-enter the market on the long side, they should have tons of dry powder given the recent liquidation. This could easily blast gold through $2000, which has formed as much more solid resistance than originally thought.

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

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

Last Updated: Apr 26, 2022

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