Tag Archives: COT report

This Feels Like the Action in 2008 Right Before the Collapse

Doc asked me last minute to fill-in for Eric Dubin, who’s M.I.A. somewhere on the shoreline of southern France, on Silver Doctor’s Metals and Markets weekly podcast. Among other topics we discussed why the current trading action in the precious metals paper market feels very similar to trading in the spring/summer of 2008 – ahead of the great financial collapse crisis and why the Fed/bullion banks are making it obvious that they seek  to scare investors away from buying precious metals with their “shock and awe” price-takedowns.

But one big difference between now and 2008 is that these “zip-line” vertical drops in the paper are being met with aggressive buying from the eastern hemisphere physical buyers, thereby limiting the size, intensity and duration of the price-hits.

As of the latest COT report release Friday which details the constituent trader positions through last Tuesday, the trader positions are moving toward a highly bullish set-up for gold and silver. In silver, the hedge funds are now net short silver futures and the swap-dealer segment of the bullion bank positioning is net long. In gold, the hedge funds have aggressively reduced their net long position and the swap dealers are long to a relatively large degree. Historically, this position shift has preceded major bottoms.

In the latest Mining Stock Journal, I present a silver producer who’s stock that was ruthlessly taken recently. I review the details in-depth, including my conversation with the CEO, and discuss why this is an opportunity to buy into a major producing company at irrationally low price level based on the facts of the situation. I also lay-out the call options I put into the fund I manage in large quantities to bet that my assessment has good probability of being correct. You can find out more about subscribing here:   Mining Stock Journal info.

After subscribing to Brent Cook for 3 months, I was underwhelmed.  Resubscribed to you a few weeks back and sure am glad I did so. You are one the few straight shooters still out there. Keep up the great work. I think we are right on the cusp of a serious market break, thus the war drums.  – subscriber “Chris

Gold And Silver Are Potentially Explosive

Gold and silver are acting differently right now. Usually when the open interest in the paper gold (Comex) net short of the bullion banks becomes overweighted, it’s a signal that they are getting ready attack the price of gold by triggering massive stop-loss selling by the technically-driven hedge funds.

And through last Tuesday, per the latest COT report, the Comex banks had piled heavily into the short side, feeding paper shorted to the hedge funds. And true to form, the market was attacked aggressively this past week starting Tuesday with the expiration of Comex options. Interestingly, the banks had to wait until after the Comex floor trading closed on Tuesday in order to take advantage of a thinly-traded electronic “access” market that is open for about another 90 minutes after the Comex closes in order to push down the price of gold enough to trigger automated hedge fund algo stop-loss selling.

The attacks on the price of gold persisted through Thursday, resulting in what appears to be a record weekly percentage drop in Comex gold open interest. But this attack resulted in a shallow price decline.  And if you trace the build-up in the bullion bank short position over the past couple of weeks, it appears that the banks were willing to sustain losses on those shorted contracts in order to cover them.  Bill “Midas” Murphy at Lemetropole Cafe first pointed this pattern out to me and I confirmed his theory by tracing out the rise in the commercial short interest with the movement in the price of gold.

At the same time, there has been a massive amount of silver – as reported – moving in and out of the “registered” accounts at the Comex silver vaults.  The silver in the “registered” account is the silver designated to be available for delivery.   On the last two days of this past week, for instance, nearly 30% of the silver held in the registered account was moved into the “eligible” account. The “eligible” account is the account in which silver is allegedly “safekept” for the owner of that silver.

Finally, although the mainstream financial media and the fear porn oriented alternative media has been making a lot of noise about the sudden fall-off in the sales of minted bullion coins, I heard a report from a large bullion dealer who said that, while retail coin sales are slow, his company has been receiving very large orders from very connected quite off the radar types purchasing large quantities of physical silver. The recurring theme from these buyers is a desire to move money out of electronic fiat currency bank credits and into privately safe-kept precious metals in bullion form.

Eric Dubin (The News Doctors) and “Doc” invited me to join them on their weekly Metals and Markets podcast to discuss the latest developments which point to possibility of a big surprise move to the upside in gold and silver that is driven by the physical market:

Gold And Silver: Patience Required

I wanted to share a discussion on the metals that I had with GATA’s Bill “Midas” Murphy this morning.  I had emailed him to ask him if he knew of any reasons the metals were getting slammed today because the dollar was down a bit, the economic reports were poor  and the stock market was selling off –  all three occurrences of which are precious metals-friendly.

As Bill suggested, silver is under more pressure today than gold, with JPM going all out to get the speculative traders to sell, which helps JPM push the price down.  If you look at short term chart, it would appear that silver is forming a head and shoulders “top” formation, something which JPM is trying achieve, as Bill correctly pointed out.

However, technical formations almost NEVER work in the metals. Typically doing the opposite of the what the  formation is indicating works the best over the last 15 years. That would imply a big upleg coming, which supports my view based on the fundamentals, which would support the view of another big move higher on the horizon.

I think JPM is doing whatever it can to minimize the damage from the inevitable. The biggest seasonal physical buying period starts in another couple weeks. Next week is options expiry for Sept silver. They probably want to push silver below $19.50 if they can because the Sept silver put/call structure currently is favorable to the call-writers (i.e. JPM) is silver closes below $19.50 on the 25th. The problem is, the way the economy and the political system is melting down, they can’t control the possibility of a random news event hitting the tape that would send the metals soaring. I believe there’s high probability a news event like that could happen at any time.

Interestingly, the o/i for gold is coming down a bit earlier than usual for the typical contract “roll” period (for Aug) and the Sept silver o/i is coming down. They are covering for a reason, I believe.  (click image to enlarge)

Untitled Silver is up 42.4 % since Dec 14, 2016. That is a HUGE run.  If you look at a 1-yr graph, silver is trending sideways consolidating that gargantuan move it made in just 7 months.  JPM and all of the other technical analysis cretins out there want us to believe that silver is forming a head n shoulders top formation. But it’s not.  It was in danger of going parabolic, something we DON’T want to have happen. Yes, silver could go parabolic up to $50 and still be insanely undervalued relative to the supporting fundamentals, but the huge hedge fund trading algos would not treat it that way.

Silver looks like it will pullback to its 50 dma, which is around $19.15 right now. As long as it holds that level – and they may crush it below that level with A LOT of paper for a few days, it will be ready for the next upleg. Since mid-Dec, we have been in an uptrend that is bouncing off of the 50 dma and moving higher.  The RSI and MACD momentum indicators are signalling the probability that the current move is becoming “exhausted,” with probability weighted toward a move higher soon.

At some point we might see a 200 dma correction. But silver could correct to its “chart” uptrend line around the $17 and still be up 24% since Dec 14.  Anyone who would sneer at that ROR belongs in an asylum or is an internet blog terrorist.

Both gold and silver are in the process of making an eventual move that will shock and awe.  We’re now aware that some of the biggest, most influential money manipulators in the world are shoveling fiat currency confetti into big positions in gold and silver – including the nefarious Rothschild clan:  LINK.  These guys are not buying gold for just a double or triple. They’re buying it because they know that the global fiat paper currency experiment is coming to an end.  And along with it so is the debt-fueled lifestyle America has enjoyed since 1971…

Gold And Silver Continue To Scaling The Wall Of Worry

At the beginning of this week, almost every so-called gold market analyst was predicting a wash-out in precious metals because of the huge bullion bank short being reported in the COT report.  A few of us believe that character of the market has changed and paper market price manipulators are losing traction – for a lot of reasons.

This week shows that the banks covered a portion of their shorts and the hedge funds and little guys sold down longs and increased their shorts.  This information may be largely irrelevant.  Interestingly, in data I’ve parsed and presented in a previous blog post,  the beginning of two of the best gold/silver rallies since 2001 occurred at a time when the bullion banks held their biggest short position in gold futures (expressed as a ratio of total open interest).

The latest issue of the Mining Stock Journal was released last night.  In it I discussed the use of JNUG (the 3x junior mining stock index ETF) and I explain why we could be on the cusp of the best move yet in the sector.   And of course I present a remarkably undervalued junior mining company (a royalty company) in which insiders bought a boat-load of shares in January and now control over 30% of the equity.  You can access the MSJ here:   Mining Stock Journal.  

A subscriber had an interesting question that is a common question I get currently:    I really enjoyed this latest edition of your newsletter. I find myself getting less and less nervous about a price smash as it feels that the powers that be can no longer stem the tide of reality. One question I do have is whether you think a massive asset deflation event (similar or greater than 2008-09) will have a negative or positive impact on the shares

My reply:   I think there’s is going to be a collapse in all “assets” that have been inflated in price by the use of debt:  housing, NYSE stocks, bonds, etc.  That is different than general price deflation.  We may see a LOT more money printing as the Fed/Government attemptsUntitled to prevent a debt-driven asset collapse.  This will could drive the price of necessities up a lot.  But this  will really fuel the entire precious metals sector, especially the junior miners which have proved gold/silver/poly-metallic deposits.  (click in image to enlarge).

Any asset valuation collapse because of debt implosion will act like a heavy dose of Viagra on the value of mining stock shares.  Look at what happened in the 1930’s to stocks like Homestake Mining when the Dow was crashing.  When the initial stock plunge occurs, the miners might correlate lower for a bit but then they’ll do a life-style changing moonshot.

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The Silver Market And Inaccurate Analysis

Commentary was posted on Zerohedge today about the silver market that needs to be swatted out of the air. Some investment advisor who for some reason gets air-time on Zerohedge posted an analysis which asserted that commercial hedgers hit their most “extreme net short position ever in silver futures” LINK.  This is at least the fifth “analyst” I’ve come across who’s written, incorrectly, about this topic.

While it’s true that the open interest in silver hit a high as of LAST Tuesday (April 26), the “net short position” by the Commercial trader Bullion Bank segment, the trader segment to which Dana Lyons refers to as “smart money,” did not come close its most “extreme net short position ever.”

Since that COT report was released showing April 26th’s open interest, the open interest in silver futures has declined to 199k.  As of the date of that COT report,  the bullion bank short interest as a percentage of total open interest in silver is 71%.   But the highest this ratio has been going back to April 2005 is 82%.  The average short interest as percentage of total o/i over the time period is 63%.   In fact, from the week ending December 9, 2005 to the week ending January 27, 2006, the short interest as a percentage of total o/i ranged between 78% and 82%, which is quite a bit higher than it is currently

During that week – which was the most extreme net short position taken by the bullion banks – the price of silver actually rose.  More interestingly, that extreme net short interest in silver preceded a huge move that took silver from $9 in early December to  an intra-day high of $15 (futures basis) the week of May 12, 2006.

There’s been plethora of repetitive precious metals market analysis that has proliferated recently.  Many of these so-called “analysts” have not been around the precious metals market very long.   The trader category which Dana Lyons references as “smart” money did not look so smart when its true net short positioning in the context of total silver futures open interest outstanding (Dec 2005 – Jan 2006) is assessed.  And the trader category to which he labels “dumb” money made out like bandits.

Too be sure, there have been several periods in which the short term direction of gold and silver can be anticipated  with better than 50% probability based on assessing the relative long/short distribution across the COT trade classifications.   But a superficial analysis of the nominal open interest positioning is not the right tool to use in analyzing the driver of the gold and silver markets.  And furthermore, the Comex is a small part of the overall global market equation.

The reality is that many of us believe, based on well over a decade – and in some cases several decades – of precious metals market assessment and participation that purveyors of paper derivative silver face a potentially bigger problem than with gold of finding enough actual physical silver to deliver into those paper promises should the “dumb” money in any unexpected quantities decide to stand still with their paper longs and demand physical delivery.   And this why you get long term graph that looks like this:

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Official Intervention In The Gold Market Is Now Blatantly At Work

The damage done to gold on Friday was due to skillfully timed flash crashes rather than powerful selling.  – John Brimelow, JB’ Gold Jottings Report

As a wider audience of market observers becomes aware of the flagrant use of the paper gold market to manipulate the price of gold, the degree of intervention in the gold market by the Fed/Treasury becomes more openly aggressive.

Eric Dubin of the News Doctors wrote a useful commentary on the current effort by the “gold cartel” to take down the price of gold:

The cartel is acting aggressively this week on top of the mountain of paper-based gold issuance into the COMEX market they’ve been shoveling into the short side already – for weeks – in an effort to slow momentum. Now, as you see today, with traders getting nervous considering sky high commercial short positions and an FOMC meeting starting tomorrow, is it any wonder that the cartel was able to get some traction to the downside?

You can read the rest of his analysis here:  The News Doctors

 

The Comex Is A Zombie Market: Hedge Funds Record Short Paper Gold

Gold didn’t “hit a low,” it was driven down by the bullion banks who are agents of the Fed, acting on the Fed’s orders…the price of gold is not determined in the market in which gold actually gets bought and sold, it’s determined in a paper futures market in which the contracts are settled in cash.  – Paul Craig Roberts on King World News

The Comex is like a grade-B horror movie – night of the living dead.   Zombies that wreak havoc on society but can’t be destroyed.  The Comex is the consummate symbol of the United States.  It embodies extreme fraud, corruption, wealth theft, market manipulation, regulatory capture, etc.  It is the ultimate manifestation of the end of Rule of Law in this country.

Last week the “managed money” hedge fund segment of the Comex took on a record net short position in Comex paper gold.  As reported to the CFTC from the CME bullion bank trading reports, hedge funds are now net short over 16,000 contracts representing over 1.6 million ozs of paper gold – over 46 tons. Conversely, the “swap dealer” segment – otherwise known as the bullion banks – have assumed a record net long position of 29.5k paper gold contracts.

Now, assuming we accept the COT report prima facie – and this can be a problematic assumption considering that the data originates from the highly corrupted bullion banks – whenever the hedge fund trader class net position has reached an extreme level in either direction, and the banks take the other side of that position, the price of gold has always eventually moved inversely to the hedge fund positioning.

Meanwhile, the amount of gold that has been declared to be available for delivery into contracts standing for delivery has diminished down to 138k ozs as of last Friday.  Against the net short of the hedge funds, this implies that the hedge funds are short 11.5 ozs of paper gold for every ounce of real gold made available for delivery.  If this ratio of paper to the real underlying commodity developed in any other commodity market the CFTC would step in an enforce the laws enacted to prevent this type of market manipulation.

The reason I now reference the Comex as a “Night of the Living Dead” zombie market is because this trading pattern between the bullion banks and the hedge funds has been in repetition since at least the time I began my involvement in the precious metals market nearly 15 years ago.  It never received the kind of attention it gets now until after the big smash started in 2011.  By then it was too late because the CFTC, SEC, Justice Department and Oval Office advisory staff had been stuffed with Wall Street’s emissaries, primarily of the Goldman Sachs and JP Morgan variety.  It’s Wall Street’s version of using pedophiles to supervise the daycare school.

Based on history, it would appear that the hedge fund/swap dealer net position is indicating that the price of gold may be in for a wild ride higher at some point.  But don’t expect this to happen immediately.  I expect the hedge funds to get aggressive in trying to push the price of gold lower in order to “harvest” their short position.   I mentioned to colleagues last week that this would explain the erratic, volatile intra-day moves in the price of gold we started to see recently.

Today is a good example, as gold traded up overnight – in the Asian physical markets referenced at the top by Dr. Roberts – only to be smashed just before data was released showing a collapse in U.S. manufacturing – data that should have been bullish for gold. However, if you want to trade on the side of the Government insiders – the bullion banks – now is a good time to buy the price smacks and sell the ensuing push higher.  At some point the banks will decide to fleece the hedge funds once again and take the price of gold higher, forcing the hedge fund black boxes to cover their shorts.

Wash, rinse, repeat.  You may ask yourself, how do you kill a zombie?  As a market for the trading of physical gold and silver, the Comex is already dead.  At some point, the entities who have stuck around to try their hand in the rigged paper game will either go broke or simply fade away.  At that point, the bullion banks will be left to play only with themselves. I suspect, however, at that point the U.S. economic, financial and political system will be in outright collapse.

Is Gold Now Set-Up For A Move Higher?

There’s just too many loud voices – plus self-promoting self-aggrandizers like Harry Dent – screaming for $800 gold.  Last time Goldman came out with an $800 gold target, gold ran from $1100 up to $1400.    Will these carnival barkers be right this time around?  I don’t know.  As Bernanke famously said, the Fed (banks) have new technology that enables them to create electronic dollars (Comex paper contracts) in unlimited quantities in order to direct the market in the direction of their command.

Of course, we all are left wondering why Bernanke ended his Fed chairmanship a few terms earlier than he needed to and decided to not stick around to face the consequences of his actions while he was pressing the print button on his keypad.

But I digress.  As for $800 gold?  It might have to wait.  The bullion banks have quietly shifted their trading book to a net long position.   And, in wash-rinse-repeat fashion, the hedge funds and the small retail traders have taking the other side of this and have gone net short Comex gold – significantly net short Comex gold:  (click image to enlarge)

Untitled

It is very rare for the hedge funds to run a net short position. Since the CFCT/CME began disaggregating the COT report into more trading “buckets,” the hedge funds have only been net short on on two occassions – now and in July/August earlier this year.  Gold staged an 11% move in August.

In the close to 15 years that I’ve been involved in the precious metals markets, when the bullion banks take extreme positions – either long or short – remarkably the market always seems to move in their favor.  Funny thing – that – because the law of averages would suggest a remote probability of this event occurring with 100% certainty.  We know the CFTC has never seemed to be able to find any indications of malfeasance or market manipulation – wink, wink.

Currently the hedge funds have their second largest net short position in the history of COT reporting.  Back in early August the net short hit a little over 14k contracts.   This explains the erratic trading in gold this past few weeks.  I would also be willing to wager that the hedge funds will show their largest net short position ever when the COT report is released.

Oh ya.  There was one other time when the hedge funds – labelled as “Large Speculators” prior to 2006 – were net short, and it was only for a couple days:   early 2000 right before the bull market in gold was launched.

Questions About Analyzing Gold Futures COT Data

GATA’s Treasurer and Co-founder, Chris Powell, forwarded an inquiry to me from a precious metals market participant who had some questions about sourcing and analyzing gold futures trading data, like the Commitment of Traders (COT) report.  I thought I would share the questions and my response because I think it will help clarify a subject that has been heavily cloaked in opacity and confusion by Wall Street and the Government (CFTC).   Here was the inquiry:

As you can see by the Zeal chart – Zeallc.com LINK –  the shorting of gold futures has risen to 200K contracts, which is at least a 16 year high.  While I realize that this is only one component of the manipulation of the gold price, I would like to follow it more closely.  Do you know where I can get the most recent data on gold shorts?

When I look at this – COT LINK –  it appears the 200K number comes from the commercial shorts only.  But why would Zeal only focus on the commercial shorts and not the net position?

When I look at this chart – Gold futures COT chart –  I’m very confused as to what I should be paying attention to.  What would you be paying attention to when looking to see what the trends are on the Comex?  Any suggestions are appreciated.

Those were great questions and I wanted to share that inquiry plus my response:

With regard to monitoring the long/short positions of gold/silver, you answered your own question.  This is the source:

http://www.cftc.gov/MARKETREPORTS/COMMITMENTSOFTRADERS/INDEX.HTM

If you want to follow the daily changes in open interest you can look here:

http://www.cftc.gov/MARKETREPORTS/COMMITMENTSOFTRADERS/INDEX.HTM

That report is updated for gold/silver around 10:00 a.m. every day, reflecting the previous day’s trade settlements.  It does not show which trading categories bought or sold, just the overall changes in open interest.

The shorting of gold futures is the primary “visible” component of manipulation.  The other components – OTC derivatives, leases and hypothecation are all behind the scenes, hidden from sight and it’s impossible to track those activities.  I believe that the more insidious exertion of manipulation occurs in those activities and that’s why it’s hidden from public view.

Adam Hamilton is behind the times.  Historically the commercial gross short position in gold and silver moved inversely with the price.  When the shorts were high, the price had been manipulated lower.  Then the commercials would reverse it by covering their shorts at a big profit, their gross short position would decline significantly and the short covering would drive the price higher.

The managed money “hedge funds” would take the other side and always lose money.

NOW the managed money – via algorithm-driven HFT trading – seems to have begun to piggy-back the the commercial selling momentum. That’s why now we are seeing large managed money shorts when the price is going lower.

To be honest with you, there’s so much fraud and corruption going on in the reporting of all of this information that it’s really pointless spending the time collecting the data, analyzing it and trying to understand it.  JPM was fined recently by the CFTF (a small, meaningless $650k fine) for stuffing commercial trade tickets into the managed money account bucket.  I guarantee you they still are doing this.

Also, there’s so may “eyeballs” now vs. 10 years ago looking at it that it’s largely removed any value from the information content (and that content is subject to high degrees of reporting fraud anyway).

People like Hamilton and Ted Butler make a lot of money selling newsletters analzying the COT data, so they will defend the value of doing so and the veracity of the data to the bitter end.

But the bottom line is that I wouldn’t spend much time trying to figure out what’s going by looking at the COT and open interest numbers. It’s become a waste of time.

I no longer put much energy in this endeavor, after having spend the better part of the last 15 years looking at the numbers religiously.  I now briefly scan the COT weekly and o/i numbers daily just out of intellectual curiosity to see where they stand and to confirm every week that my view on what I just laid out above is correct.

It is correct and will remain correct until the system collapses.

Hope that helps.

The Truth About Comex Data And CFTC COT Reports

Think about this:  bullion banks and large buyers of gold/silver deal in bars and tonnes. Think about how many silver eagles it would take to piece together enough to re-melt and fabricate into a meaningful quantity of marketable bars. Nothwithstanding the expense of doing this, it is an absurd notion that they would even bother with it.  Especially when the Comex and SLV have plenty of bars that are available for hypothecation.

The enormous quantity of silver eagle sales are going to the growing legion of individuals in this country and Canada who understand that the dollar is going to collapse sooner or later. It is poor man’s gold. It is more fungible as currency than 1 oz gold coins. Ultimately, it is a possible signal that eventually the people will rise up and overthrow a completely corrupt system of Government and banking.

A reader of my blog – a high profile money manager and market strategist – sent me an email with kind words about my statement criticizing Ted Butler’s  theory that JP Morgan is the entity that is the buying 1 oz. silver eagle coins in record quantities this year.

His comment stimulated a response about my view on the work being done by Ted Butler:

I believe Butler turned his ability to analyze the silver market – and the fact that he was one of the few people doing it for a long time – into a newsletter selling juggernaut. Now the only evidence he looks at and evaluates is the evidence that supports and promotes subscriptions to his newsletter. Although readers of my blog send me copies of Butler’s newsletter twice a week to ask my opinion, I stopped “absorbing” his analysis about 5 years ago.

1) His COT and open interest analysis relies on the all of the data being honestly and accurately reported. But from where is the data sourced? It’s provided by the big banks who run the Comex. If the COT, open interest data and warehouse stock data are accurate and honest, it would be the ONLY financial reports that come from banks that are honest. What are the odds of that? Butler refuses to question that premise and I’ve exchanged emails with him over the years pointing this out and he refuses to accept even the slightest possibility that the data is corrupt. In fact, he’s outright contemptuous of any thought that the data may be corrupt.

2) He refuses to consider the possibility that GLD and SLV lease and hypothecate their metal. He’s the only person I know who has read every word of either prospectus  who is willing to believe that the GLD/SLV metal inventory reports are accurate and honest. In fact, I find it hard to believe that Butler has bothered to even read the entire prospectus of either Trust. Again, ultimately, the reports which are used by the Trust accountants and which are published on a daily basis are generated and sourced from the banks (HSBC and JPM) who safekeep the metal. It states right in the Prospectuses that the custodians are the keeper of the financial reports connected to the custody of any metal. There are strict legal restrictions on ANYONE’s ability to visit the bank premises and inspect the files.

I will say that his method of analyzing the COT data was at one time original and informative. But that time has past by. I will also say that he did a lot to open the market’s eyes to the manipulation of the silver market. But ultimately, as the exercise of the market looking at, analyzing and absorbing the COT information becomes widespread, the information becomes quickly priced in, right? If a few people use and trade it, it works. If the entire market sees it and tries to use it, it prices in immediately.

I truly believe that, ultimately, the banks distort the COT and Comex data into a shape and form that they want us to see and believe – just like everything else they do. Butler refuses to acknowledge and accept this possibility because it would mean that his work has no value. It also means that there is a distinct possibility that the Comex banks are actually using Butler (unwittingly) as a tool to promote the credibility of the reports.

At the end of the day, our system is growing more fraudulent and corrupt by the day.  And the Government that is supposed to be in place to enforce the laws has actually become a partner with Wall Street and Corporate America in doing whatever it takes to steal as much wealth from the public as they can before the country collapses.   But don’t take my word on it, read a few history books and then read or re-read Orwell and Rand and decide for yourself…