Open Interest
On a futures
exchange such as COMEX or TOCOM
the open interest is the daily statistic that indicates the number of gold futures
contracts which have not been fulfilled either by making or taking delivery
or by liquidation; they are those still
in play.
The level of open interest
is an important signpost to how liquid the exchange is and how lively action in
a given trading month will be before the last
trading day by which time all contracts must be offset or liquidated.
Analysts also monitor changes
in the level of open interest to detect trends. Rising open interest in a rising
market signals new buyers joining in a bullish
trend; conversely rising open interest with falling prices signals new sellers
going short, reflecting a bearish
mood.
Again, declining open interest
coupled with a declining price suggest profit-taking or stop-loss
selling from long positions, while declining open
interest when prices are rising indicates short positions being bought back or
covered. In sum, the level of open interest is a barometer of a futures exchange’s
fortunes.