COT basis June 7th, 2011

GOLD spreads have dropped sharply, from 7.2% of total O/I two weeks ago, to only 2.8%, suggesting more definite views on price direction. However, all that seems to be happening is a reversion to the normal - Commercials are adding to shorts and reducing longs (they're now nett -50.7, from -44.0 two weeks ago), Big Specs are adding to longs and reducing shorts (now nett +40.7, from +35.0 two weeks ago), and Small Specs remain close to home (at +10.0, from +9.0). With Big Specs often providing a better lead than Commercials in this market, we'll stay moderately friendly.

Mini S&P shows a less encouraging picture: Commercials reduced their nett long (now +5.8, from +8.2 two weeks ago and +9.9 last week), adding considerably to shorts and only marginally to longs, while Big Specs moved from nett short (-1.4 last week) to nett long (+1.4 this week). They have a slightly bigger share of the total O/I than usual, at 16.9% (Commercials have 71.2%, Small Specs have 11.9%), so could have an impact if/when they change their view. Small Specs are nett short (at -7.2), but have less weight than usual, meaning that their view should be less significant as a Contrary Indicator than it sometimes is. The path of least resistance looks downward.

Currency positions continued to swing around, but now generally in a move towards the norm. Br Pounds saw Commercials moving back to nett short, at -6.4 from +11.1 two weeks ago); Big Specs reduced their nett short, at -1.5 (from -12.9 two weeks ago), while Small Specs became the holders of the offsetting longs (at +7.9). Their share of the total O/I remains quite low, at 20.7% (vs Commercials at 48.8% and Big Specs at 30.5%). Price direction now looks down rather than up, but there's not much in it.

In EUROS also, positions have continued to revert to type. Commercials are nett short 20.1 (from -8.8 two weeks ago), Big Specs nett long (+17.6, from +7.4), and Small Specs still uncertain, at +2.5 (from +1.4). Commercials added considerably to shorts, and reduced longs, while Big Specs did the reverse - noticeably, they took their share of total shorts down to 15.1% (last week they held 21.8%) - this gives them plenty of room to sell again. We'll join the Commercials on the short side.