The recent COT report shows an intriguing story in gold positions

24th May 2010

For the week the Gold price is down 4.45% in UK pounds, 4.55% in US dollars, and 6.12% in Euros (London PM fix).

For the year to date the gold price is still up… 17.78% in UK pounds, 5.19 % in US dollars, and 20.62% in Euros (London PM fix).

The Amex Gold Bugs Index (HUI) is up 0.45% for the year to date.

The SPDR ETF (GLD) is up 4.92% for the year.

We wrote last week about the huge short positions the bullion banks were building up in gold. Combined with the reaction to Germany’s announcement on naked short selling, the bullion banks positions helped push gold’s price lower.

This week we’d like to bring to your attention a pattern that, if it continues to play out, will have big implications for gold prices.

The weekly Commitment of Traders report (COT) is the report we mentioned last week. It shows the positions of major movers and shapers in the gold market. Each Tuesday data is put together that records the positions of these big players. From this we can analyse what and who is going short and long on the gold price.

The COT report is released on Friday of each week. You can see it here.

The recent COT report shows an intriguing story in gold positions

One of the things that is intriguing about the recent COT reports is the divergence between bullion banks and the Swap Dealers. Over recent years the Swap Dealers and bullion banks have normally taken similar positions… back in November 2009 both took out large short positions against the gold price before the recent correction played out over December and early 2010.

Recently the pattern has changed.

Whilst the bullion banks continue to go large on shorting the gold price, this is the third consecutive week in which the Swap Dealers are liquidating their short positions and moving them into longs.

Why is this significant?

It is too early to tell if this is a trend, we’ll need to watch this to see if it continues. But if it does then this would be a significant move because Swap Dealers have a huge number of short positions. Removing them effectively takes away a large percentage of sellers.

Taking away sellers means less gold is available, which means prices should rise.

Swap Dealers still have a very long way to go before they turn to net longs but if the current pattern continues we could be witnessing a change in attitude from a big player in the gold market.

We’ll continue to keep an eye on it to see if this pattern continues, in the mean time if you haven’t already, sign up to our free email and receive these updates each week..

Digger
Gold Price Today

We leave you this week with a fascinating article forwarded to us by one of our readers, James. It’s a Bloomberg story that reveals the insatiable appetite for gold amongst central banks – Central Bank Gold Holdings Expand at Fastest Pace Since 1964

Important

Information in Gold Price Today is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Appropriate independent advice should be obtained before making any such decision.