The cyclical ebbs and flows of Comex open interest in gold and silver futures trading is a somewhat arcane topic that receives very little blog commentary and, with a couple exceptions out of London, zero mainstream media attention and Wall Street analysis. But if you follow what has become a pattern endemic to the Comex precious metals open interest data, you can gain an information and trading edge on the rest of the market.

Last Monday, after looking at the increase in open interest on the Comex, I opined to some colleagues that I believed that the increase in open interest over the past week was a product of large hedge funds chasing the momentum and chart technicals of the gold market lower. I suggested that we would know if my theory was correct when the Friday Commitment of Traders Report (COT) was released. For those who don't know, the cut-off date for this report is the prior Tuesday. The CME reported a large increase in the gold futures open interest for both the previous Friday and the Tuesday COT cut-off day.

As it turned out, not only was my hunch correct, but the increase in the weekly hedge fund short position is the largest weekly increase since May last year and the large hedge fund gross short position in Comex gold - 10.1 million ozs/293 tonnes - is the largest hedge fund short position in gold dating back to May 2005. The Got Gold Report posts an excellent COT table which shows breakdown in the various COT trader categories (Commercial/big bank, large spec, small spec): Weekly COT report. Here's the link to the Got Gold Report Blog: GGR

David Fuller's view In the short to medium term, gold will often perform like any other widely traded asset. However, over the longer term, it will perform like hard money. The graph in this article (click on it to increase the size) provides further evidence that gold is oversold.