COMEX warranty a futures contract

20140508 TNote FuturesHowever, rather than it being an obvious oversized play or one-way bet by the speculative hot shots on the COMEX, it just might be something we COMEX watchers only rarely see evidenced more by the absence of something than the presence of something. Let me explain

And, lets jump directly to the class of trader we most associate with hedging on the COMEX gold market, the class of traders the CFTC labels Producers, Merchants, Processors and Users. These are the biggest of the big gold traders in the world. The largest bullion dealers, the refiners, the producers, manufacturers, jewelry makers, bullion management firms, etc., and this category also includes the bullion trading banks that they end up doing their hedging through - out of convenience, or out of necessity. We have come to call this category the Gold Trade, because it represents a huge slice of the gold market that would naturally have an unprotected long position if they did not hedge using futures or swaps to lay off some of that very real inventory risk.

The simple key to tracking and following the Producer Merchants is gauging their motivation to hedge.20140508 PM Gold Net The higher the number of hedges they have in play, we figure the more they fear that the price of gold might move against them in a big way. More about that in a moment.

The most recent CFTC data, for April 29, incredibly shows that with gold having sold down to just under $1300 ($1295 to be exact) the Gold Trade reported holding a tiny 16, 684 contracts net short. Thats it! And that aint much for an entire market.

20140508 PM Gold Net CrIndeed, as the graph below shows clearly, the Producer Merchants (PMs) are not all that far below their record setting and very rare record net long position set back on December 3, 2013, when they reported a collective 12, 295 contracts NET LONG, with gold then $1223 the ounce. (Today with gold near $1300 the Gold Trade is no longer net long, but they are sure not very net short either.)

For comparison, as the graph also clearly shows, back when the gold price was still above $1500, the Producer Merchants kept a much larger number of hedges on to protect against the gold price falling abruptly. We can quantify that generally just by looking at the graph which shows that the PMs kept somewhere between say 140, 000 and 210, 000 contracts net short in COMEX gold hedges.

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Popular Q&A

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How much would it cost me to buy one gold futures contract on Comex?

Brokers usually have this kind of information, you can take a look at interactive brokers for instance:

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