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Are you COT in a Gold Trap... Good!

Stewart Thomson
Dec 2, 2008

  1. If you buy metals stocks and physical bullion, understanding the weekly COT report is very important. The C.F.T.C. stands for: The United States Commodity Futures Trading Commission. Each Friday the CFTC publishes their weekly numbers. On what the various players did during the previous trading week. Known as the "COT Report". Ending with each Tuesday's trading. In plain English, every Friday we learn what the various market players did in the previous trading week. From Wednesday to Tuesday.
  2. There are three main groups of players in the gold and silver markets. The retail clients, the funds, and the bankers. The CFTC calls these groups "commercials" (mainly the banks but also other commercial players), "non-commercials" (funds and large speculators), and "non-reportable positions" (the public and other small speculators).
  3. The Friday report is called the "COT Report". C.O.T. stands for "commitment of traders".
  4. OK, those are the facts. Within the basic facts are some hidden nuances that make the COT Report one of the most critical tools a gold and silver investor needs in their toolbox.
  5. I would argue the COT Report is the single most important tool in the gold investor's toolbox.
  6. Gold and silver investors try to analyze the reports to figure out what direction the market may move next.
  7. I suspect that 99% of investors are not using the COT tool correctly.
  8. Let's take a look at the COT Report for Gold. For the trading week ended Nov 25, the CFTC reports that the commercials (bankers) liquidated about 36,000 long positions and added 2,000 shorts.
  9. The non-commercials (funds) added 17,000 long positions. And liquidated 16,000 short positions. The non-reportables (public) liquidated about 1,000 longs and 6,000 shorts.
  10. One gold futures contract represents 100 ounces of gold. That's not a small amount of money.
  11. 10,000 contracts represents 1 million ounces of gold. Currently, that's about 800 million dollars.
  12. For every buyer, there is a seller. That is a rule of free markets. What is particularly interesting about the COT numbers is that most of the time, the bankers appear to be taking the opposite of the trading done by BOTH the retail clients.
  13. The bank families have access to tools that the rest of us don't have. Some of these tools include: the ability to "create" money, ownership of clearing houses, exchanges, shareholding in the Federal Reserve. The list goes on.
  14. Some would say it is not a level playing field. I agree.
  15. Which is all the more reason to follow what the bankers are doing. Follow their market actions.
  16. Not many investors understand the use of algorithms. Most think these are technical black box trading systems. They are. But one important purpose of these algorithms is to hide what orders a fund has in the market. To stop the bankers from seeing their "hand of cards".
  17. The funds can hide how they place orders, but nobody can hide their fills. The statistics bear out this fact. It doesn't matter how the funds place their orders. The fact is, week after week, the bankers are shown to be taking the other side of their trades.
  18. Sadly, looking at the action in the gold market yesterday, the recent hand of gold cards bought by the funds last week is now a house of cards.
  19. It is the funds and public who are bidding and offering for gold, while the bankers are simply buying what is offered, selling what is bid.
  20. 36,000 contracts of COMEX gold long positions were offloaded by the bankers last week. That is more than the entire open COMEX position held by all the world's retail investors.
  21. That gold was not sold in lumps, or all at once. The bankers only sell strength, and only buy weakness. As the retail investors and funds sell, the bankers buy. As the retail investors and funds buy, the bankers sell.
  22. Some gold analysts follow the COT Reports to track what the bankers are doing. They attempt to piggyback the bankers. This is not as easy as it seems, because these are total numbers for the 5 trading days ended Tuesday of each week. There is no breakdown of the daily buy and sell action. Also, the numbers are not revealed by the CFTC until Friday. So investors are always getting past, not present statistics.
  23. Looking at the statistics week after week, it is clear that the bankers are consistently taking the other side of the trades taken by the funds and retail investors. It's not a 100% correlation, but it is very consistent.
  24. It is also clear that the funds and retail investors buy strength, and sell weakness. Technical algorithms and technical analysis triggers "breakout" signals and "breakdown" signals.
  25. As the gold price rises, the bankers are consistently seen to be adding to their overall gold short positions, and subtracting from their overall gold long positions. The funds and retail investors are doing the opposite.
  26. Most gold analysts are looking for a "turn". A point in time where a chart of the long and short positions held by the various players is reversing or accelerating, and they can place their own gold and silver bets at that point.
  27. I believe this is where most gold investors and analysts are making an error. It is my view that most gold investors operate severely undercapitalized. They place large sums of money at price points where they expect either a reversal or acceleration of the gold price trend. Most gold analysts urge them on in this behaviour, and when their analysis turns out to be wrong, the investors are asked to take a "stoploss".
  28. Gold is the world's lowest risk investment. Yet most investors lose money investing in gold. By definition, they have sold at a loss. The bankers operate in the gold market with the ability to stay in the game, regardless of any and all actions in the gold price. They are fully prepared and ready to enter orders at any and all possible gold price points.
  29. There is a current view held by some gold analysts and investors that the bankers are in trouble at the COMEX. That somehow, they won't be able to deliver all the gold if the small retail investors order delivery of their contracts. I don't believe this. The bankers that operate the COMEX also own the LBMA. The London Bullion Market Association. They also own and/or are partners with many of the world's major refiners. They are major shareholders in the world's largest gold producers and many explorers. They are shareholders in the US Central Bank.
  30. Given the above facts, I find it very hard to believe that any COMEX warehouse shortage caused by retail investment demand for delivery would succeed in "busting" the bankers or their COMEX. If the COMEX is to be busted, it is the bankers themselves who will do it.
  31. Despite what you hear in the media, the the bankers own a lot more physical gold than everyone else. So it is the bankers who stand to benefit the most from a broken COMEX and a skyrocketing physical bullion price.
  32. I believe gold will rise to $6,000 an ounce (or higher). Just like they did in the 1970's, the banks will make the money, not the retail investor. If the small investor wants to make money in gold, do not follow the tactics advised by the gold analysts, like "back up the truck", "buy the bargains" "this is the traditional buying season", etc. Instead, focus your efforts on duplicating the tactics of the bankers in your own buying and selling of gold and silver.
  33. This means you must buy gold and silver robotically. In small portions on price weakness. Sell a portion of what you buy robotically on price strength. This is how the bankers operate their trading programs.
  34. You need to be prepared to buy gold and silver all the way down. To price levels far below what you believe is possible. The gold market can do anything. The bankers know this. So they are prepared for anything. Be prepared to buy gold at any price, on weakness. If you want to predict where gold might go, follow the analysts. If you want to make money in gold follow the actions of the bankers.
  35. The bankers do not cut their risk in gold with stoplosses. They do it by increasing the number of price points where they buy gold and sell it at a profit. And by reducing the amount of money placed on the line at each entry point. This is exactly how the bankers operate. And have operated for hundreds of years. Successfully.
  36. Here is the latest COT Report for Gold. Courtesy of the US Commodity Futures Trading Commission.

  37. The US bond market has been a mystery to many gold investors. It "should" have topped out according to most gold analysts. And sent a wave of money from the world's largest market, bonds, into the world's smallest market, gold. Causing an astro blast in the gold price.
  38. That hasn't happened. Instead of topping out, the bond market, incredibly, seems to be starting a new leg up. Most gold investors are wondering if this could have dire consequences for gold.


Stewart Thomson
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Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualifed investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:

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