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COMEX Producers / Merchants / Processors / Users

Producers / Merchants / Processors / Users (hereafter “producers”) is a category of Comex traders specified in the disaggregated version of the Commitments of Traders Report (CoT report) published by Commodity Futures Trading Commission (CFTC), which represents companies and institutions that engage in the production, processing, packing or handling of a physical commodity and use the futures markets to manage or hedge risks associated with those activities. As one can see, this group is very similar to commercial traders. The only distinction is that swap dealers (who were included in commercials before) now have their own category.

From an investment perspective, the producers’ positions indicate market trends, at times. As one can see in the chart below, producers (red line) – similarly to swap dealers and contrary to money managers and other reportables – are generally net short and move in the opposite direction to the gold prices – they actively buy (reducing their short positions) when the market goes down and actively sell when the market goes up (increasing their short positions). For example, producers were systematically adding short contracts from mid-2008 until the end of the bull market. This is why investors monitor producers and use changes in their positions as a sentiment indicator in the gold market – producers tend to be most bearish just prior to significant price tops and most bullish just prior to significant price bottoms.

Chart 1: The price of gold (yellow line, right axis, London P.M. fix) and the net position of producers (red line, left axis) from 1986 to March 8, 2016.

The price of gold and the net position of producers on COMEX based on the COT report

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tops prediction corrections in gold

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