Saturday, February 20, 2010

Comex Gold Commercial Net Short Position as a Percentage of Total Open Interest

The past couple weeks I have encountered a bunch of noise to the effect that the gold COTs structure constitutes an adequate clean-out of speculative interest in the metal. With that in mind, I took the historical Commercial Net Short Position for Comex gold for each weekly COT report and divided it by the Open Interest shown on each report. The purpose here is to give us a more neutral reference of speculative interest in the metal than the raw Net Short Position. This is because that as the gold market develops OI may tend to increase on a trend basis. So I think that adjusting the Net Short Position to OI gives us a truer reflection of the market's structure.

Here is a chart of the data beginning with the June 5, 2007 report, and ending with the most recent report dated February 16, 2010.



Click here for the data on a google docs spreadsheet.

The Commercial Net Short Position was upwards of 60% of Open Interest at points last year. The market has backed off that extrem, extrem level and is now in the mid-40% range, which, historically considered, is still pretty extreme. The lows in 2007 and 2008 came with readings closer to 20%.

It may be that the COTs aren't a valid tool this time around (I've heard that before...) or it may be that gold moves higher now and we wait longer for a real clean out, but to say that the market is now bullish from a COT perspective is just completely bogus.