Market Report: Gold’s Comex open interest bullish

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by Alasdair Macleod, GoldMoney:

This week, gold and silver consolidated at established support levels after their recent slide, having recently tested the $1350 and $16.20 respective supply levels. In European trade this morning (Friday) gold was trading at $1303, up $10 from last Friday’s close, and silver was trading at $15.36, up five cents. Comex volumes for gold were healthy rather than spectacular and for silver were moderate.

Bull 1

It is notable that gold’s open interest on Comex has increased by 65,000 contracts in the last eight trading sessions, the equivalent of 202 tonnes. This is despite the April contract beginning to wind down, and indicates firm buying by hedge funds, some of which have been accumulating longer-dated futures. At the same time, the put/call ratio on June options is two to one in favour of puts, with not much of note in the other series.

Taken together, it appears the hedge fund buyers are not so much speculating, but more likely to be taking strategic positions. That would account for much of the increase in open interest. A put/call ratio of two for a mid-year contract expiry suggests existing long positions are being hedged. These are not necessarily hedging positions on Comex, but could be on other markets, or even in physical ETFs.

The picture painted is one of changing views in the managers of big money, not yet bullish for gold, but aware they should be adjusting towards a “risk-on” investment strategy.

Our next chart, taken from Commitment of Traders Reports (which are now up to date) should be viewed in this context.

Bull 2

The last data input was for Tuesday 5 March, coinciding with the low point in open interest. The move from a record short position to net long only 32,000 contracts (the long-term average is shown by the pecked line at 110,000) represented a bear squeeze. The recent increase in OI should take net longs back up to between 50,000 – 100,000, suggesting there is some heft behind the current rally. This is now better-quality buying.

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