Thursday, March 8, 2012

Guest Post: Gold/ Silver COT Analysis & Preview: The Daily Show

From SD reader Marshall Swing:  The Daily Show

First, I would like to thank the Doc for letting me post the daily synopsis of the Commitment of Traders (COT) reporting week, prior to the actual COT coming out on Fridays. No one ever gets to see this data, as far as I know, as I have never seen a newsletter writer use it. Perhaps private paid services report it.
In this article, we examine the gold and silver movements as published in the Daily Bulleting by the CME is the prior week of February 29 through March 6. The Friday releases of COT data are always three days behind and run from Wednesday to the next Tuesday.

This past reporting period gold price decreased -$116.30 or 6.5% and silver price followed down -$4.42 or 11.9%.

You can see on the charts that every week I show the daily close price and on the next line include the price change from the previous day's price. February 29 has been the most interesting day in recent months because silver dropped a -$2.56 and gold lost -$77.10. As of tomorrow, we should have a more firm picture of why these drops in price occurred when the Commitment of Traders report is available and we examine the reduction in Open Interest (OI) in light of the Open Interest movements on that previous Wednesday.

The second set of numbers is about Open Interest change. You never see this in newsletter writer's columns. I wonder why?

Open Interest determines price. Since I do not trade on the COMEX, the only Open Interest figures that I was heretofore interested in was the COT. It was not until recently that I understood how the spot price was calculated though I may have read it previously and it did not stick.

Spot Price is determined by the Most Active Month's daily volume in the futures. The Daily Bulletin lists the silver spot price as pertains to every month - the current month, the Most Active Month and all other months. The all other months category is useful for two items - determining options bets and determining where the next battle for the spot price will be. Currently, in gold, the Most Active Month is April. April futures currently determine current the spot price which is what us Phyzz stackers concern ourselves with the most which trying to buy physical on dips to cost average down.

While I stated "Spot Price is determined by the Most Active Month's daily volume in the futures." I want to say something about daily volume. Many writers report daily volume as if it is an indicator of how well a metal is trading.


Volume only determines liquidity for traders. Realize that OI determines price and OI movement in gold and silver, typically, amounts to a small fraction of volume. Most days between < 1% to <5% of total volume.

I do not recommend that anyone but the savviest of players trade on the COMEX. It is a rigged market, however options can be a good bet for well informed players and for that you have to be well informed on the future months.

Notice in the second block of number, for each metal, I have listed the Most Active Month OI change, the second Most Active Month OI change, all other months OI change, and total OI change. So, you can see daily the price fluctuations and compare it to the OI change in the Most Active Month for price and compare OI movement in all other months to get a picture of daily movement.

The last block of numbers show total OI movement for the reporting week. Notice that gold's was a -50514 OI contracts and silver was a -5705. Very interesting that the ratio of gold to silver contracts is roughly 50 to 1.

A final item I want to point out is a field I came up with to get an overall average picture of OI movement. That is for gold the OI Contracts per $1 Change and for silver the OI Contracts per $0.05 Change. Here you can see the average number of contracts needed to effect the change in price for each day.

Going back to the 29th, the big raid, we see that gold averaged 233.35 contracts traded to achieve a -$77.10 price drop. We see that silver averaged 22.69 contracts traded to achieve a -$2.56 price drop.

For those who would be interested in observing the numbers for the week previous to the current COT period I will always provide that week here.

Note that I also include the official COT numbers at the top of the chart.

Happy stacking!