Commitment of Traders data for Tuesday, May 28, was a real stunner. It shows positioning that's even more bullish than the extremes of the last couple of weeks. As open interest fell in the latest week, I thought speculators and managed money would've reduced short exposure. If the data through Tuesday is any indication, the opposite is true. However, commercial investors (aka. "smart money," dealers, bullion bankers, producers) reduced their shorts by 45,000 contracts -- bringing this to the lowest level since 2005, when gold began a rocket launch. It was the commercials that covered shorts in a big way, not the speculators! The commercials are now net short just 59,221 contracts. On Sept. 11 of last year, commercials were net short 237,091 contracts, and at the peak nearly 290,000.
It gets even more glaring when one looks at the net short positions within the commercial's section of the report. The Big 4 is short 8.8 million ounces or 148% of the net commercial short position. The Big 4, which is basically JPM in my opinion, is short essentially alone with all the other commercials either out of the way or long. The "gold raptors" are smaller commercials and hold their largest net long position since Sept. 9, 2008.
The following chart from GotGoldReport.com shows the extreme, once-in-a-decade bullishness of commercial positioning.
Large speculator net long positions total 56,879 contracts. On Sept. 11 of last year, large specs were net long 182,016 contracts. Again, it's the most bullish condition on record. Producers are still near record low hedges at 37,571 contracts. Gold open interest fell a whopping 61,726 contracts this week to a very low 383, 791, supporting the argument that players are pulling away from doing business on the Comex.
Charts Source: BarChart.com
The latest Comex warehouse report of registered gold shows 1,571,801 ounces on hand. This level indicates lousy deliveries, and I have alluded to the cause: very low producer hedging. There is also still a question about a 100,000 ounce delivery from the May futures (issued from JP Morgan), and for some reason this hasn't showed up in the Comex data.
As of the latest report on Thursday, JP Morgan (JPM) had 470,322 ounces in its registered accounts and 346,844 ounces in its customer or eligible accounts, and the firm still owes the May standers 100,000 ounces. Looking at the CME stand-for-delivery data release through Friday night, JP Morgan needs to serve 474,300 ounces of the June futures so far. That not only cleans out the dealer account, but puts them 3,978 ounces in the hole.
Add the missing 100,000 ounces from May delivered (and a few contracts so far to be served in June) against the JP Morgan customer account and that part of the vault is down to 242,544 ounces. Further, there are 594,200 ounces still standing in June open-interest, and no doubt JPM is the issuer on some of it. A key consideration: Eligible metals are stored at Comex warehouses on behalf of banks or private parties but are not available for delivery for a futures contract. Registered metals are available for delivery to settle futures contracts.
So far, June contracts are due and 598,600 ounces are going out the door next Monday and Tuesday. So unless somebody "jumps the fence" and suddenly puts on fresh June contracts for delivery, it looks like the Comex generally escapes a force majeure but ends up in shambles with little registered gold left in the warehouse. JPM, on the other hand, is in serious scramble mode.
Looking at the forensics, I view the Friday thin trading shenanigans off the bogus PMI report (notice how these economic reports such as retail sales are constantly revised downward later) as just more spec gaming. They are trying to break into a fortress. The end result is that this setup is even more extremely bullish than the Tuesday CoT report revealed. Therefore, treat it as just another gift, perhaps the last one.
The situation in silver is every bit as extreme. Here, the commercials are nearly flat, which is rather unprecedented.