Silver COT

As silver fell $0.82 or 7.51% COT reporting Tuesday to Tuesday (from $10.92 to $10.10 on the cash market), the large commercial COMEX silver traders (LCs) reduced their collective net short positioning (LCNS) by 4,903 or 18.04% to 22,268 contracts of net short exposure, while the total open interest on the COMEX fell yet another 2,723 contracts to just 95,873 COMEX 5,000-ounce contracts.

That is the lowest silver LCNS in years.  In fact we have to go all the way back to March of 2003 to find a lower commercial net short position for silver metal.  Back when silver was trading at $4.00 and change.   

Source for base data CFTC for LCNS, London Silver Fix for silver from LBMA until 2-26-08 then cash market

For context, the chart below compares the silver LCNS to the total number of open contracts on the COMEX, division of NYMEX.  When compared to all the contracts open, the commercial net short positioning amounts to an extremely low 23.23%. 

Source for base data CFTC for LCNS, London Silver Fix for silver from LBMA until 2-26-08 then cash market

Silver has since tested as low as $8.68 during Friday’s panic morning trade before recovering back up to close at $9.35 on the cash market, about even with the previous week’s ending.  Despite the huge plunge for gold, silver behaved relatively better this week, but the fear-driven action was unsettling to even the most grizzled of hard core trading veterans. 

In a normal market the extremely low silver LCNS and LCNS:TO would be extraordinarily bullish.  This is, however, a market that is anything but normal.  Nevertheless, the intrepid among us should be on the lookout for signs of a breakaway run on the silver market.  Most likely that will not get started until there is the threat of stability in the rest of the global financial kingdom.  Virtually anything is possible short term.  Be very careful out there. 

End Notes

The futures markets have completely divorced from the physical markets for gold and silver as two or three U.S. banks continued to savage those who would take the long side in futures.  These miscreant banks continued to reap (rape?) obscene profits from their short-selling domination of the paper contract markets, but COT data shows their positioning and therefore their ability to influence the market is growing smaller now.    

It is difficult to imagine a more egregious abuse of trading power than that shown by the two large U.S. banks holding over 78% of all the net commercial short positioning in the small COMEX silver market on October 7.  An enormously dominant position that, once allowed by regulators to be taken, the banks were compelled to defend.  They have been relentless in that defense.

You can bet that if any two entities took a similarly large long position the howls of protest by the short side to the CFTC and the SEC would put an end to it pronto.

Why are such overwhelmingly large positions allowed for the hedgers and short sellers and not allowed for speculators?  Because presently the rules of the game favor one side over the other on the COMEX.  The rules allow position limit exemptions for the very largest traders which can claim they are hedging other offsetting positions, whether they are or not.  That has to change before we will be on a level playing field in the paper bullion markets.  We can all help to effect that change in the coming months and years with our actions and with our own voices. 

In a year when just one ETF added the equivalent of over half of the entire COMEX inventory of silver, because of more buying pressure than selling pressure, it is extremely difficult to justify a drop of over 50% in the price of the metal.  

We are repeatedly told by some captive analysts that the plunge in the prices of silver and gold stems from the forced selling by funds and panic selling by investors during this crisis of confidence in financial markets.  Sorry, that argument is not supported by selling pressure in the largest, most liquid and most transparent markets for gold and silver.  The gold and silver ETFs.  (They have been adding metal consistently which indicates increasing demand, not distribution.)  That argument is not at all supported by the real physical bullion markets for gold and silver.  Every bullion shop everywhere has three things in common right now and have had for months and months.  Virtually no inventory, intense demand and the highest premiums for actual metal in many years.  That is not a sign of liquidation, it is a very real sign of strength.   

The current commercial net short positioning for silver is the most bullish it has been since March of 2003.  In more normal times that would lead to this report issuing a leveraged bullish call.  (With appropriate new-trade trailing stops in place of course.)  In the current environment, however, it’s just another in a long string of damning evidence that points to an artificially manipulated paper market that is not influenced by real supply and demand.

It points to a market dominated by a few very large hedgers and short sellers that have forgotten that there is a real physical market out there.  Either that, or they arrogantly ignore the physical market with impudence and disdain for those of us who buy and sell in it and deign to dictate to us what the dollar denominated price of stuff should be.  Again, that has to change.    

That’s why everyone who wants to add significant quantities of gold and silver to hold for the long haul might consider taking delivery of some of the COMEX metal stocks in December as discussed in the Friday special Got Gold Report.  The slogan:  Delivery in December.  (DID)  Given the outbound flow of metal from the COMEX to the physical market in October, there may actually be a sense of urgency on that.   We’ll see.   

Now It’s Personal

On a personal note, I am saddened that we have not seen more vigorous opposition to the raping of the gold and silver markets by the two rogue bullion banks from the leaders of the gold and silver industry itself.  Where are the leaders in the gold and silver industry, except cowering in fear and running for cover?  Do they fear retribution in the OTC market if they try to put the spotlight on the two almighty federal reserve member and bullion banks?  How far down will the price of gold and silver have to be driven before they will fight like men instead of running like mice?

Where are the industry champions?  So far they hide, seemingly impotent, blind and mute.  We should hear from them loudly and often.  Encourage them to find their voices and to take up their pens.  Do it now while the thought is fresh and spirit high.    

Where are the regulators?  So far the CFTC and the SEC protect the status quo in the face of obvious and compelling evidence of scandalous, heavy-handed advantage for one side of the market.  They should be at the vanguard of the issue, but instead they too are silent. 

Do Something Not Nothing, We All Matter    

Producers that don’t have to sell their metal (admittedly very few of those) ought to consider buying metal (on the COMEX in December) to deliver into commitments, withholding new production short-term until the markets stabilize and come to their senses.  Take delivery.  Remove the metal from the COMEX and let them trade paper between themselves.

We can take a stand right now.  Everyone can participate.  Individuals, companies, funds and all investors that want to hold significant quantities of gold and silver metal for the long haul can consider taking actual physical metal delivery of gold and silver in the December contract month, as discussed in the Friday special Got Gold Report.         

It isn’t just the big boys that will make a difference in this counter-assault on the very few, but dominant short sellers of gold and silver.  Every purchase of gold and silver ETFs contributes to the cause.  Every person that takes delivery of a 1,000 ounce bar of silver or a 100-ounce bar of gold from any source helps too.

Finally, we can’t say when this unnatural and devastating assault on silver and gold will finally grind to a halt, but when it does the pent up speculative demand and the vicious short covering rally that follows the ultimate lows ought to be neck snapping and dramatic.  That’s of course if we manage to avoid financial Armageddon.

A few very large players have taken advantage of a situation where too many speculators left the field of battle leaving the hedgers and short sellers with the superior advantage.  As in all things human, that situation is temporary.  It is about to change. 

Meanwhile, let’s remove as much of the physical metal as we can from those COMEX players who don’t respect it and move it into the physical bullion market where people do.