gold Friday the 3rd :: Louis' paranoia

Gold, Friday the 3rd

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What happened on Friday the 3rd?

I guess I will have to wait for yet another Commitment of Traders report.

In order to have a clue on what has happened, we should have a look at two Commitment of Traders reports, the one before the drop, the one after the drop.
Commitments of Traders are published at the end of each Friday at the CFTC site.

Full reports, combined futures and options are included below.

But we first have to look at the second to last line of each: nothing spectacular happened in the percentage of commitment of the "commercials"

      :--------------------------------------------------------------------------------------------           
      :                                   CONCENTRATION RATIOS                                                
      :         PERCENT OF OPEN INTEREST HELD BY THE INDICATED NUMBER OF LARGEST TRADERS                      
      :--------------------------------------------------------------------------------------------           
      :              BY GROSS POSITION               :              BY NET POSITION                           
      :--------------------------------------------------------------------------------------------           
      :   4 OR LESS TRADERS   :  8 OR LESS TRADERS   :  4 OR LESS TRADERS  :  8 OR LESS TRADERS               
      :--------------------------------------------------------------------------------------------           
      :    LONG   :   SHORT   :   LONG   :  SHORT    :  LONG   :   SHORT   :  LONG   :    SHORT               
      :--------------------------------------------------------------------------------------------           
ALL   :    18.4        33.5       28.7       47.1        7.7        22.2      10.8         30.1    2003-09-30
ALL   :    18.8        33.9       29.1       47.3        7.0        21.4      10.5         29.3    2003-10-07

From where did the change come? Let's look at the changes in commitments:

      :  TOTAL  :                      REPORTABLE POSITIONS                      :                            
  F   :--------------------------------------------------------------------------: NONREPORTABLE              
  U   :         :        NON-COMMERCIAL          :               :               : POSITIONS                  
  T   :         :--------------------------------:               :               :                            
  U   :   OPEN  :   LONG OR SHORT: LONG AND SHORT: COMMERCIAL    :     TOTAL     :                            
  R   : INTEREST:       ONLY     :  (SPREADING)  :               :               :                            
  E   :         :----------------------------------------------------------------------------------           
  S   :         :    LONG : SHORT:   LONG : SHORT:   LONG : SHORT:   LONG : SHORT:    LONG : SHORT            
--------------------------------------------------------------------------------------------------- 
      :         :         CHANGES IN COMMITMENTS FROM September 30, 2003         :                            
ALL   :  -33,388: -26,958 -12,123  -9,119  -9,119   9,086 -12,204 -26,992 -33,447:  -6,396      59

Big number in the spreading: almost 10 thousand contracts were closed. Big number, but only 7% of the positions.
Non-commercial longs were hit, most probably buy running the stops. Stop losses for the longs, stop limits for the shorts (halved).
The change in total short position almost matches the total open interest change.
Commercials went net 21 thousand contracts "longer", but increased their percentage of short positions. Funny!
There were 24 less non-commercial trades on the week. Meaning that the non-commercials longs were not running for cover. Meaning that the positions were most probably stopped out.
Biggest losers must have been the large brokers/clearing houses which had to "make the market", and unwillingly had to take the other side of the trade. (As one could suspect by the small numbers of traders in each category). 3/4th of the drop in open interest only happened on the following Monday and Tuesday: meaning that the Friday session (115K volume) was in the hands of the "commercials" only, with clearing houses as the only other party to the trades. And as the open interest barely bunged on Friday, the "other party" had to take all the losses.

My first sentiment remains that the commercials have run stops in order to cover a part of their short positions.
Net "longer" 21390 contracts is not small money as the underlaying is 100 oz.:
a change of $1 in the price of gold still means $100 per contract,
hence, 21390 * 100 = $2,139,000 (real money mark-to-market).
FWIW, mark-to-market change for $1 price of gold is $25,523,100 (based on the futures only, open interest of Thursday 9th) ,
gross WAG for the options, add some $15 mio.

I still regard the drop in open interest and the covering of the shorts by the "commercials" as bullish the price of gold. Another volume spike on Thursday did not sent the "non-commercials" running for cover either, price of gold apparently confirming a support (or buyers interest?) around $370 (base Dec futures).

This does not means that there won't be another run lower, commercials still are 152 thousand contracts net short (mark-to-market for $1 change in gold: $15,200,000). On the other hand, if the clearing houses have been the losers on Friday the 3rd, I guess they won't be caught again next time. Friday the 3rd was, in my opinion, a last attempt from the "commercials" to cover all they could cover.

As I said, next COT report will be more conclusive. See you next weekend, after Friday 17th (which also happens to be the equities options last trading day).

the Commitment of Traders reports

Report for Tuesday October 7, 2003 - 2003-10-07

GOLD - COMMODITY EXCHANGE INC.                                                                                
      COMMITMENTS OF TRADERS WITH DELTA ADJUSTED OPTIONS & FUTURES COMBINED,October 7, 2003                   
---------------------------------------------------------------------------------------------------           
      :  TOTAL  :                      REPORTABLE POSITIONS                      :                            
  F   :--------------------------------------------------------------------------: NONREPORTABLE              
  U   :         :        NON-COMMERCIAL          :               :               : POSITIONS                  
  T   :         :--------------------------------:               :               :                            
  U   :   OPEN  :   LONG OR SHORT: LONG AND SHORT: COMMERCIAL    :     TOTAL     :                            
  R   : INTEREST:       ONLY     :  (SPREADING)  :               :               :                            
  E   :         :----------------------------------------------------------------------------------           
  S   :         :    LONG : SHORT:   LONG : SHORT:   LONG : SHORT:   LONG : SHORT:    LONG : SHORT            
---------------------------------------------------------------------------------------------------           
      :         :(CONTRACTS OF 100 TROY OUNCES)                                  :                            
      :         :                                                                :                            
ALL   :  454,861: 113,877  14,189 138,756 138,756 136,346 278,321 388,979 431,266:  65,882  23,595            
      :         :                                                                :                            
      :         :         CHANGES IN COMMITMENTS FROM September 30, 2003         :                            
ALL   :  -33,388: -26,958 -12,123  -9,119  -9,119   9,086 -12,204 -26,992 -33,447:  -6,396      59
      :         :                                                                :                            
      :         :PERCENT OF OPEN INTEREST REPRESENTED BY EACH CATEGORY OF TRADERS:                            
ALL   :  100.0% :    25.0     3.1    30.5    30.5    30.0    61.2    85.5    94.8:    14.5     5.2            
      :---------:                                                                :                            
      :NUMBER OF:                                                                :                            
      :TRADERS  :               NUMBER OF TRADERS IN EACH CATEGORY               :                            
      :---------:                                                                :                            
ALL   :    256  :     149      40      87      87      42      49     217     157:                            
      :--------------------------------------------------------------------------------------------           
      :                                   CONCENTRATION RATIOS                                                
      :         PERCENT OF OPEN INTEREST HELD BY THE INDICATED NUMBER OF LARGEST TRADERS                      
      :--------------------------------------------------------------------------------------------           
      :              BY GROSS POSITION               :              BY NET POSITION                           
      :--------------------------------------------------------------------------------------------           
      :   4 OR LESS TRADERS   :  8 OR LESS TRADERS   :  4 OR LESS TRADERS  :  8 OR LESS TRADERS               
      :--------------------------------------------------------------------------------------------           
      :    LONG   :   SHORT   :   LONG   :  SHORT    :  LONG   :   SHORT   :  LONG   :    SHORT               
      :--------------------------------------------------------------------------------------------           
ALL   :    18.8        33.9       29.1       47.3        7.0        21.4      10.5         29.3    
---------------------------------------------------------------------------------------------------

Report for Tuesday September 30, 2003 - 2003-09-30

GOLD - COMMODITY EXCHANGE INC.
      COMMITMENTS OF TRADERS WITH DELTA ADJUSTED OPTIONS & FUTURES COMBINED,September 30, 2003
---------------------------------------------------------------------------------------------------
      :  TOTAL  :                      REPORTABLE POSITIONS                      :                            
  F   :--------------------------------------------------------------------------: NONREPORTABLE              
  U   :         :        NON-COMMERCIAL          :               :               : POSITIONS                  
  T   :         :--------------------------------:               :               :                            
  U   :   OPEN  :   LONG OR SHORT: LONG AND SHORT: COMMERCIAL    :     TOTAL     :                            
  R   : INTEREST:       ONLY     :  (SPREADING)  :               :               :                            
  E   :         :----------------------------------------------------------------------------------           
  S   :         :    LONG : SHORT:   LONG : SHORT:   LONG : SHORT:   LONG : SHORT:    LONG : SHORT            
---------------------------------------------------------------------------------------------------           
      :         :(CONTRACTS OF 100 TROY OUNCES)                                  :                            
      :         :                                                                :                            
ALL   :  488,249: 140,835  26,312 147,876 147,876 127,260 290,525 415,971 464,713:  72,278  23,536            
      :         :                                                                :                            
      :         :         CHANGES IN COMMITMENTS FROM September 23, 2003         :                            
ALL   :  -50,241:  -5,699  -1,034 -22,924 -22,924 -17,877 -23,822 -46,500 -47,781:  -3,741  -2,460            
      :         :                                                                :                            
      :         :PERCENT OF OPEN INTEREST REPRESENTED BY EACH CATEGORY OF TRADERS:                            
ALL   :  100.0% :    28.8     5.4    30.3    30.3    26.1    59.5    85.2    95.2:    14.8     4.8            
      :---------:                                                                :                            
      :NUMBER OF:                                                                :                            
      :TRADERS  :               NUMBER OF TRADERS IN EACH CATEGORY               :                            
      :---------:                                                                :                            
ALL   :    269  :     173      39      85      85      34      44     228     154:                            
      :--------------------------------------------------------------------------------------------           
      :                                   CONCENTRATION RATIOS                                                
      :         PERCENT OF OPEN INTEREST HELD BY THE INDICATED NUMBER OF LARGEST TRADERS                      
      :--------------------------------------------------------------------------------------------           
      :              BY GROSS POSITION               :              BY NET POSITION                           
      :--------------------------------------------------------------------------------------------           
      :   4 OR LESS TRADERS   :  8 OR LESS TRADERS   :  4 OR LESS TRADERS  :  8 OR LESS TRADERS               
      :--------------------------------------------------------------------------------------------           
      :    LONG   :   SHORT   :   LONG   :  SHORT    :  LONG   :   SHORT   :  LONG   :    SHORT               
      :--------------------------------------------------------------------------------------------           
ALL   :    18.4        33.5       28.7       47.1        7.7        22.2      10.8         30.1    
---------------------------------------------------------------------------------------------------