Gold News

Net Short Collapse in Silver Futures

Silver Futures short positions could be a bullish sign for silver...

ON FRIDAY the US Commodity Futures Trading Commission – which runs the New York COMEX exchange on which gold and Silver Futures are exchanged – published its weekly Commitments of Traders report, writes Gene Arensberg of GotGoldReport.

The data show traders' positions as of the close on Tuesday, September 27 and reveal a stunning drop in the large commercial net short positions in both gold and in Silver Futures.

For example, as silver fell $7.88 or 19.8% Tues/Tues, from $39.76 to $31.88, traders classed by the CFTC as "commercial" reduced their collective net short positioning (LCNS)  by an extremely large 16,446 contracts to show 24,262 contracts net short.  This, while the open interest fell by 10,089 to 102,014 open. 

Here is our graph for the commercial net short positioning for Silver Futures on the COMEX. 

Not since November of 2008, during the heat of the 2008 Panic, has there been a smaller commercial net short position for Silver Futures.  We can say that as of last Tuesday, the largest, best funded and presumably the best informed commercial traders of Silver Futures had taken the price downdraft opportunity to very strongly reduce their short bets for the second most popular precious metal. 

The last time the combined commercial traders were this "small" on the short side of Silver Futures, November 25, 2008, the price of silver then was $10.33 the ounce.  Therefore, with silver at $31.88 on Tuesday, having tested as low as $26.04 in panic liquidation selling the day before, we can say that commercial traders had about as much confidence in the Silver Price going lower as they did at $10.33 silver three years ago. 

Incidentally, the relative commercial net short positioning also plunged to a very low and usually bullish 23.8% of all COMEX contracts open – the lowest LCNS:TO since October of 2008.

This is a very bullish COT report for silver.  Let's see if the market "gets" that in the days and weeks ahead.) 

Here a few factoids about this unusually large reduction in commercial net short positioning:

  • Minus 16,446 contracts net short is the largest 1-week drop in large commercial net short positioning (LCNS) since February 14, 2006 (-25,048 contracts then, with silver then $9.22). 
  • 24,264 contracts net short is the lowest LCNS since November 25, 2008 (LCNS was 23,682 then with $10.33 silver). 
  • 23.8% is the lowest relative commercial net short positioning since October 21, 2008 (23.2% then with $10.10 silver). 
  • As silver fell a net 19.8% Tues/Tues the large commercial traders reduced their net short bets by 40.4%. To find a larger 1-week drop percentage wise we have to go all the way back to March 25, 2003 (-47.7% then with $4.39 silver). 
  • The largest portion of the net short reduction was by the Producer/Merchants, the category which includes bullion banks.  They covered or offset 11,213 down to 33,563 contracts net short – the lowest net short position for the Big Sellers since December 9, 2008 (32,878 contracts net short then with $9.83 silver).
  • Swap Dealers, the "other commercial" traders, increased their net long positioning for Silver Futures by 5,233 to 9,301 contracts net long.  They more than doubled their net long position in other words.
  • 102,014 is the lowest open interest for COMEX Silver Futures since August 25, 2009 (101,539 then with $14.28 silver).  

Get direct access to the spread when buying and selling Silver Bullion...

A land developer, professional numismatist, self-taught bullion trader and investor since 1980, Gene Arensberg analyzes technical and fundamental developments in the precious metals markets. In 2000 Gene started sharing his own market research with fellow traders and fund managers. Those email reports evolved into his popular Got Gold Report, a biweekly look at important indicators for gold and silver published on the web. Gene's more in-depth market reports, insights and trading ideas are available at GotGoldReport.

See the full archive of Gene Arensberg.

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