While the drop in speculative interest in various currencies made news last week, it is the turn of precious metals to be the key focus in this week's summary of the CFTC's Commitment of Traders report. As the chart below demonstrates, as of Thursday September 27, both gold and silver saw a massive plunge in the net long non-commercial interest (the cleanest proxy of how speculators are positioned in gold and silver). This is not surprising, following last Friday's CME hike in gold and silver margins, and this week's follow through action by the Shanghai Gold Exchange. The drop of 22,278 and 7,113 contracts, in gold and silver, to 127,801 and 15,425 contracts, respectively, brings the net total exposure to the lowest it has been since the fear of deflation was the only thing on everyone's mind in March of 2009. What is perplexing is that the net spec interest in silver is about half where it was on December 31, 2010 even with silver unchanged on the year, while only 56% of the long spec gold contracts from the beginning of the year remain even as gold is still up 15% YTD!
So while the drop is not unexpected, it is in fact beneficial for precious metal bulls as it means that the bulk of weak spec hands have evacuated the scene, and that any observations that gold and silver trades purely in tandem with spec interest are completely incorrect. This is also bad news for the CME as any additional margin hikes will have increasingly less impact. Lastly, it foes without saying that it would be delightfully ironic if the CFTC shows a net negative interest in non-commercial positions and gold is still be up for the year.