Gold Futures Open Interest Approaches Record Levels

Commercial speculators in gold futures are currently at a record net short interest in terms of number of contracts net short, however, it is not a record in terms of notional dollar amount:

Gold (Commitments of Traders – 5 year)


The current net notional short position held by commercials is slightly more than $43 billion and this figure is still several billion dollars short of the record (~$50 billion) reached just before gold reach its all-time high in August 2011.

‘Commercial speculators’ fall into two categories (producers and swap dealers) and if you look closely at the above chart you’ll notice that while producers have pared back some short exposure in recent weeks, swap dealers have continued to get shorter essentially in a straight line. Swap dealers essentially construct hedging arrangements or structured trades for clients. So they are unlikely to hold much ‘naked’ exposure to a given market, however, their clients could be using swaps to express a directional view on a given market. Hedge funds could also be using swaps to hedge long exposure in other gold related asset classes such as mining shares.

Perhaps most interesting about the latest CoT report is the surge in open interest. Although we are still shy of the all-time record reach in November 2010, the acceleration in gold futures open interest we have witnessed since January IS one for the record books:



Source: Ycharts

The surge in open interest (230,000+ contracts, 60%+) during the last five months is only matched by the surge of late 2007 into early 2008. We can be certain that surging open interest is characteristic of bull market periods, however, just as we saw at the end of 2010 (when open interest reached record levels) there is a good chance that a multi-week/multi-month consolidation isn’t far away.


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