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Politics : Dutch Central Bank Sale Announcement Imminent?
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To: Bill Murphy who wrote (4232)3/14/1999 4:29:00 PM
From: dospesos  Read Replies (1) of 81913
 
Bill:

I do not think the CFTC COT numbers for Comex gold are all that outrageous. Nor that bearish. You know that the commercials went from net +76,329 on 1 Sept 98 to -41,928 on 6 Oct 98, a swing of 118,267 in that fall rally. The hedge funds/large specs and the public were getting net long then as they are now. So net net the commercials are selling to the funds/large specs and ma and pa.

But what's going on amongst the commercials? We have market makers, banks, producers, fabricators, and probably some gold mutual funds who are true hedgers. As the cash price goes up we have market makers selling cash and hedging long via OTC options or at Comex. We have producers hedging short (OTC/Comex) on future production. We have fabricators hedging long on future need. And we have institutional trading desks who may only trade OTC options or futures who try to catch the swings and will be long on the rise and short on the decline.

So what does a swing from net long to short at Comex mean in this context? It is some combination of Comex versus OTC options preference overall (they ARE competing), plus some marginal reluctance of cash market makers to sell into the rise, plus producer nervousness that the rise won't continue (especially when they are in precarious financial position),plus fabricators with a full load in inventory. I seriously doubt that the trading desks jump in short until they see some of this already happening.

My guess--we are all guessing unless we are insiders--is that the market makers are a little afraid of getting creamed and may have pulled in their horns and are thus not hedging short as much. This could end up being quite bullish if they aggressively buy the decline s they did from October to December, especially if the low of the decline stays well above August lows.

Tom

PS: I realize full well that there is some overlap amongst the sub-categories of commercials in such an unregulated market. I am separating them here only for purposes of analysis.
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