Open Interest Shows Speculators Have Reduced Gold and Silver Positions

GOLD
Gold has fallen by 1.7% and silver by 4% as the U.S. dollar has bounced from 2 month lows. Some are attributing the sell off to interest rate hikes in Brazil and the bounce in the dollar. However, it is more likely due to further selling by momentum-driven traders who see that the short term trend is down and they are sticking it to under pressure longs.

Gold is currently trading at $1,347.73/oz, €1,004.19/oz and £850.12/oz.

(Click to enlarge) Gold in USD and CFTC CEI Open Interest - 5 Years (Daily)

Most major equity and government bonds have also been sold despite the U.S. job data which was ostensibly positive. An indication that the recovery of the U.S. economy and long term outlook remains less than rosy was seen in more Fitch talk regarding the precarious nature of the US’ AAA credit rating and this has been reflected in a further rise in the cost of insuring the U.S. against default.

Contrary to the widely held market opinion that gold resembles a bubble with speculators and investors manically buying gold, the CFTC Open Interest figures show that open interest in the gold and silver markets have fallen and are a long way from record highs.

We pointed out yesterday that record buying of American silver bullion coins is most certainly not a contrarian signal of a mass mania speculative bubble. Bullion coin buyers acquiring silver bullion coins at 15% premiums are not speculators piling into a market place. Rather they are long term buy and hold hard asset investors who are buying a store of value, unlike the leveraged paper speculators on the COMEX. Many have no intention of selling in their lifetimes or at least until the U.S. and the world returns to the path of fiscal and monetary prudence.

Widely followed and publicised newsletter writer and fund manager Dennis Gartman has issued a bearish warning regarding silver and commodities in general but he remains positive on gold. Gartman’s short term calls on gold and silver have been wrong more often than not in recent years and the bulls will use his call as a contrarian signal that we may be getting close to a low in this most recent sell off.

SILVER
Silver is currently trading $27.55/oz, €20.53/oz and £17.37/oz.

(Click to enlarge) Silver in USD and CFTC CEI Open Interest/ Futures - 5 Years (Daily)

PLATINUM GROUP METALS
Platinum is currently trading at $1,805.25, palladium at $806/oz and rhodium at $2,375/oz.