Non-Commercial Traders

Non-Commercials Traders (large speculators) is a category of traders specified in the Commitments of Traders Report (CoT report) which represents investors who are usually not involved in the production, processing or merchandising of gold.

Non-commercial (and commercial) traders are the classifications used by Commodity Futures Trading Commission (CFTC) to identify Comex traders that use positions in the futures market for speculative (or commercial) purposes. In the disaggregated version of the CoT report, non-commercials are divided into money managers and other reportables. 

Non-Commercial Traders and Gold Price

Non-commercial traders are primarily institutional investors and hedge funds that speculate on gold prices to profit from their movements (so investors should have their eyes peeled for their positions). For example, a hedge fund may sell gold futures to benefit from the impact of a strong U.S. dollar on gold prices without intending to take physical delivery.

From an investment perspective, non-commercial positions indicate market trends, at times. As one can see in the chart below, non-commercials are usually net long (compared to commercials, they take the opposite side of the trade). Contrary to commercials, they usually follow trends in the gold market – they increase their net long position when prices rise and scale it back when prices decrease. For example, when the 2000s bull market continued, non-commercials were adding more net long trades. Consequently, close to the end of that rally, they had their most bullish positions. In other words, non-commercials are generally on the right side of the market, but they tend to become overextended near peaks and bottoms. This is why investors monitor non-commercials and use changes in their positions as a sentiment indicator in the gold market – non-commercials tend to be most bullish prior to significant price tops and most bearish before significant price bottoms.

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

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