Gold By The Numbers (Green Faucet)

BY BRAD ZIGLER | NOVEMBER 18, 2010 | 2:56 PM | 0 COMMENTS

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Real-time Monetary Inflation (last 12 months): -1.7%

Gold speculators, at first blush, ought to have felt good about the last Commitment of Traders report from the Commodity Futures Trading Commission. Net speculative length in gold futures rose for the first time in five weeks.

Net speculative length? What's that?

It's simply the sum of the net long futures positions held by money managers, large noninstitutional traders and the little guys, the small speculators. As of Nov. 9, net speculative length stood at 313,504 futures contract equivalents (futures together with delta-positive options).

That was a 4 percent increase over the previous week. Over the forgoing four weeks, speculative length had stair-stepped lower from 326,216 FCEs.

Bullish celebration would have been premature, however.

The two big drivers of gold's price are commercial entities, such as producers, dealers and processors, and money managers. Over the past four years, commercials maintained a net short position averaging 139,383 FCEs. Meanwhile, money managers—hedge funds, pensions and endowments, together with advised commodity accounts—have lined up on the opposite side with an average net long position of 132,303 FCEs.

More often than not over the past four years, the "net/net" for these two players has been a short position. Preceding the last COT report, however, there were 13 straight weeks of a positive—a long—net/net position. As of Nov. 9, the net/net turned negative again.

The implication? The increase in net speculative length came from some quarter other than the market's prime movers. And so it was. Noninstitutional specs had, in fact, boosted their net long position by 35.8 percent in a week's time while money managers treaded water (actually, fund runners dropped their net long position by 1.8 percent). Over the past four weeks, money managers' net long concentration in gold futures declined from 95.9 percent to 93.6 percent.

Money Managers' COMEX Gold Positions

Noninstitutional speculators haven't been good predictors of gold's price action. The correlation between the specs' net position and gold's price has only been 38.9 percent since 2006. That's worse than the track record of small speculators, who've predicted gold's price change with 59.7 percent accuracy. Nobody holds out small specs as wise about market action.

With that in mind, it's best to be careful here.