40,000 Comex Gold Contracts acquired by Anonymous Whale

Whales moving the markets are more common in crypto, but since 10 August, a new major player has appeared on the long side of the gold futures contracts market. Raw data shows a large non-commercial trader has amassed as many as 40,000 COMEX gold contracts, the equivalent of 4 million ounces of gold - a cool $AU9.85bn.

These reports are coming from Ted Butler, the preeminent market analyst who decrypts the opaque monthly Commitment of Traders reports (COT) produced by the CFTC. As per Ted and a number of other analysts, the buyer is a non-commercial trader, which means that they aren’t involved with the direct trade of the commodity. By contrast, a Commercial Trader might be an auto manufacturer like Toyota that locks in a price for silver to be used in their cars across the year to hedge against any price spikes. While we don’t know exactly who the trader is, they are by definition a speculator, likely to be a hedge fund or a family office.    

While the identity isn’t clear, the timing of the establishment of the position on the 10 August was ideal, as the price had just crashed over the previous days from the $US1810 range down briefly to $US1720.

Ted Butler has argued that one market participant with the wherewithal and predisposition to take the position would be billionaire hedge fund manager John Paulson. We covered Paulson’s commentary on the gold market last week. Paulson has said publicly that he intends to leverage a long gold position to gain a return of 25-50x on his original outlay. For investors in Paulson’s leagues, there aren’t many markets liquid enough to take that kind of position other than the COMEX. Major moves need huge liquidity to soak up buy orders without moving the market in themselves. Historically, Paulson has been the largest holder of the most liquid Gold ETF GLD, so he is no stranger to the metal or the challenge of not bidding up the market while establishing a position.

In a world dominated by mind-boggling numbers, it’s important to consider how large this new long position is. For the uninitiated in the dark arts of the COMEX futures, a contract is a specific amount of a commodity; a wheat contract sits at 5,000 bushels (~136 metric tonnes). Gold futures contracts are 100 troy ounces of gold - and they got 40,000 of those contracts. As per the COMEX’s initial margin requirements, the minimum cost per contract would be $US8250 ($US330million for the 40,000 contracts).

The new long position is standing to claim 4 million ounces of the same gold shown above.

While this new position is unlikely to chart a new course for the $US11trillion market in itself, if it is a major hedge fund, family office, or perennial investor with influence, then this may lead to a cascade of new money looking to hitch a ride on this first mover. If it is Paulson, our bet is that there are more than a couple of investment houses looking to piggy-back on movements of an investor who leveraged positions during the GFC to the tune of $US20billion betting against sub prime mortgages. Whoever it is, there is a new player betting against the COMEX gold shorts.