Investigating the Claim "Speculative Shorts Driving Gold Lower"

Are speculative shorts "driving or contributing" to the move lower in gold? Let's investigate.

The Commitment of Traders (COT) reports is published every Friday as of the previous Tuesday. The COT report shows long and short positions.

My lead-in chart plots the price of gold as of the close of every Tuesday starting June 12.

The big specs are typically hedge funds and pension plans while the commercials are gold producers and market makers. The producers are always short, while the market makers are hedgers who take the other side of the trades.

Now let's look at changes in open interest.

Gold Open Interest Positions

There are at least two problems with the gold short theory.

From June 26 to July 3 the price of gold rose by $5.30. Yet, the large spec shorts increased from 118,446 contracts to 132,156 contracts. The small specs increased shorts from 32,129 to 36,276 contracts. That's a total short increase of 17,857 contracts. The open interest rose by 25,591contracts (majority short).

From July 3 to July 10, the price of gold declined by $15.30 while the long position increased by 6,083 contracts and the short position decreased by 1,161 contracts. Open interest increased by 9,424 contracts (majority long).

I have seen the gold short theory posted before, but it doesn't add up. We can check again on Friday when we have the report for July 17.

Comments (11)
No. 1-11
Blacklisted
Blacklisted

The Gold bugs have been using this excuse, along with QE and others to justify why they've been wrong for 6 yrs. When gold finally does lift off with the collapse of confidence, will they be complaining about the normal manipulations for profit? Manipulators can't change the trend.

Mike Mish Shedlock
Mike Mish Shedlock

Editor

I do not believe manipulators can change the trend either. They can goose it, but not change it.

Carl_R
Carl_R

Exactly, blacklisted. It is, indeed, possible for a manipulator to sell, pushing the price lower, however, he can't hold that position forever. In time he must buy it back, which produces an equal and opposite effect.

Hearing this constant claim gets tedious, but it's actually much, much worse than that. The constant claim that gold is controlled by price manipulators has to hurt the price of gold. If the price of gold is actually controlled by manipulators, no sane person who is acting rationally would ever even consider owning it.

Roger_Ramjet
Roger_Ramjet

Net positions seem to be fairly balanced, similar to a purely hedged market neutral strategy. You wouldn't expect to see wild price swings under such circumstances. I'm wondering if the COT is picking up everyone's activity. For instance, is central bank activity included in the report, or could they have arranged for an exemption from the report? Sure its a very cynical view, but, hey, its the times we live in.

RonJ
RonJ

Looks like the inverse of the recent move in the dollar. Doesn't look like anything special to me. The gold shorts just happen to be on the right side of the current move in the dollar.

In a trade chat room yesterday, one guy said he just covered his short of SLV.

Stuki
Stuki

Now let's hope Putin really has the influence over Trump the ditto heads insists he has, and straightens out our Clown in Chief's misguided belief that there is something, anything whatsoever, positive about having money printed into thin air by a bunch of privileged halfwits.

Carl_R
Carl_R

Amazing to think that the single Russian ship which sunk 113 years ago, now being salvaged, contains 1/10 as much gold as all the gold held by Russia today.

RobinBanks
RobinBanks

He should ask why Russia has debt to gdp of 10% and a tax rate of 13%. It's called seeing your country being crushed by socialism and neoliberalism and doing something about it. He should ask why Russia is buying physical gold and not paper.

pgp
pgp

For the first time in a while gold is down against all currencies. Normally the USD-centric views on gold overlook USD changes. However the price of oil just tanked and of course gold generally follows oil price, since it takes fossil fuel to produce bullion. Yes its paper gold but it is still influenced by the basic rule of commodities - they're intrinsically linked to oil. The analysts falling over themselves for their moment in the spotlight are as usual spouting rubbish. Inevitably they are the mouthpieces that manipulate sentiment so that the commercial traders can profit from the overshoot.