Submitted by Marshall Swing:

Silver COT Report 10/26/12

Commercial paper stacks sold off a small 435 longs on the week but led short covering raids utilizing -2,030 shorts to drop the price to end the week with 45.18% of all open interest, a decrease of -0.63% in their share since last week, and now stand as a group at 277,495,000 ounces net short, which is a decrease of just about 8,000,000 net short ounces from the previous week. 


Large speculators were forced out of 1,578 longs by the downward prices but added 414 short contracts decreasing their net long position to 190,680,000 ounces, an increase in their net long position of just under 10,000,000 ounces from the prior week.


Small speculators sold off a small 544 longs and took advantage of the price drop to make some money by covering 941 short contracts for a net long position of 86,815,000 ounces a decrease of over 1,000,000 ounces net long from the prior week.


At the close of the COT reporting period on Tuesday afternoon, silver was about $31.70.  The beginning of the COT period saw silver at about $32.98 so the drop in price is about $1.30 for the reporting week.  However, looking at price from Friday to Friday saw no change with silver at about $32.09 though there was plenty of volatility during the week.


While the price drop definitely hurt the large speculator’s profit margins, I believe the real story to be told this week is that for a mere 8,000,000 ounce reduction in the commercial’s net short position they were able to achieve a $1.30 drop in the price of silver.  They had a little help with the small speculators covering a huge number, close to 10% of their shorts.


8,000,000 ounces change for the commercials is less than 3%.  If they were able to get away with another 5 weeks of price reductions of this magnitude, silver would be trading under $26 and they would still hold a very high net short advantage, historically speaking, as compared to when silver was just above $26 a few short months ago.


As I have reported the last couple of weeks, the price reduction in the metals seems to be much more fueled by the battles going on for the gold price than what our silver commercials are doing here.  What happens in these wars is that when the gold commercials attack their automatic trading systems set off like trades and affect silver speculators and Blythe and her boys enjoy a huge reduction in the silver price without having to expend much of their short position on the silver desk.


It sure has the appearance of a commercial tag team match to me…


As always, for your convenience, if you would like to contact the CFTC and express your views to them, I have provided you their phone numbers and I hope earnestly that you fill up their phone lines: and email addresses as well:


[email protected]  Chairman Gensler


[email protected]  Commissioner Chilton


[email protected]  Commissioner Sommers


[email protected]  Commissioner O’Malia


[email protected]  Commissioner Wetjen


[email protected]  Director Meister


See you next week!



    • Not all the beginners who have just started to buy physical silver because most of them think about getting profits in terms of dollars when silver’s price rises. So when silver goes down, they will quickly sell their silver possessions because they’re scare of the loses in terms of dollars. 


    Why do you think The Department of Homeland Security and The Social Security
    Administration have loaded up on millions of rounds of ammunition? Got it!???????

    So what happens if the economy really starts sliding rapidly and this loss of jobs becomes an avalanche?
    Can the U.S. economy and the American people handle another major economic downturn?
    Some of the biggest names in the business world have announced job cuts in recent weeks.  The following are 15 signs that layoffs and job losses are skyrocketing…
    1. Dow Chemical (NYSE:DOW) has announced that it will be closing about 20 plants and will be letting about 2,400 workers go.
    2. Colgate-Palmolive (NYSE:CL) has announced that they will be eliminating about 2,300 jobs.
    3. DuPont (NYSE:DD) has announced plans to eliminate about 1,500 jobs.
    4. Ford (NYSE:F) has announced that it will be eliminating 6,200 jobs and will be reducing production capacity in Europe by 18 percent.
    5. Hewlett-Packard (NYSE:HP) announced last month that they plan to eliminate 29,000 jobs.
    6. Chip maker AMD (NYSE:AMD) has announced that they will be getting rid of about 15 percent of their workers.
    7. Sony (NYSE:SNE) has announced plans to reduce their workforce by about 2,000 workers.
    8. Electronics manufacturer Sharp reportedly plans to eliminate 11,000 jobs.
    9. Engine maker Cummins Inc. (NYSE:CMI) has announced that they plan to get rid of about 1,500 jobs by the end of 2012.
    10. Earlier this month Applied Materials (NASDAQ:AMAT) announced a plan that will eliminate up to 1,300 jobs.
    11. Zynga (NASDAQ:ZNGA) (known for making video games for Facebook such as FarmVille) has announced that they are reducing their workforce by about 5 percent.
    12. Lattice Semiconductor (NASDAQ:LSCC) has announced plans to eliminate about 13 percent of their jobs.
    13. Alcatel-Lucent (NYSE:ALU) recently announced a plan to eliminate more than 5000 jobs all over the globe.
    14. Siemens AG (NYSE:SI) has announced that the number of positions being eliminated may reach 10,000 by the end of the year.
    15. Banking giant UBS (NYSE:UBS) plans to eliminate up to 5,000 jobs.
    Please keep in mind that these job cuts do not show up in the unemployment numbers yet.  When big corporations announce the elimination of jobs, it often takes a while before those job losses actually take place.
    Sadly, I believe that this is just the tip of the iceberg.  I am convinced that the layoffs and the job losses are going to get a lot worse.
    In fact, 2013 is already shaping up to be a very difficult year for the economy no matter how the election turns out.
    Those of you that read articles regularly already know that our economic system is becoming increasingly unstable.  We could literally plunge into another major recession at any moment.
    Not that we need any more economic trouble.  Tens of millions of American families are having to fight tooth and nail just to make it from month to month right now.
    There aren’t enough jobs and the middle class is rapidly shrinking.  Even if you do have a job, that does not mean that you are doing okay.  About a quarter of all jobs do not even pay enough to lift a family of four above the poverty level, and entry level wages for those with just a high school education have been steadily declining over the past 40 years.  If you doubt this, just check out this chart.
    So what is going to happen if we do have another avalanche of job losses like we saw back in 2008 and 2009?
    Will even more of us end up dependent on the government?
    We are told that we are in the midst of an “economic recovery”, but the number of Americans that are dependent on the government just continues to soar.  In fact, at this point it is at an all-time high.
    If the economy is getting better, then why does the number of Americans on food stamps just keep going up?  To get an idea of just how massive the food stamp program has become, just check out this infographic.
    One of the most frightening things about the possibility of another major economic downturn is the loss of hope that it could bring.
    At this point, most Americans still believe that things will get better eventually. Won’t happen period.
    But what is going to happen when large segments of our population lose all hope? Total population desperation my friends
    How desperate will they become? You know the answer already. Stock up on beans, bullets and band-aids!
    When people become desperate, they tend to do desperate things. Your neighbor and your best friend will want what you have!
    Just check out what happened to a family down in Woodstock, Georgia the other day.  They had just lost their home to foreclosure, and they were getting ready to move out.  So they posted an ad on Craigslist for people to come over and get some things that they were planning to get rid of.  What happened next is a glimpse into the kind of desperate behavior that we may see during the next major economic downturn…

    Their online post was just a well-meaning ad for a giveaway in their driveway outside the small house, a giveaway scheduled to begin at 10 a.m. Wednesday.
    But big crowds showed up and ended up taking practically everything inside the house, too.
    Wednesday night, Michael Vercher walked 11Alive’s Jon Shirek through his family’s almost empty soon-to-be former home.

    • Add in rising food prices from this years years drought, massive instability in the mideast that could suddenly spike oil and gas prices and we are sitting on a time bomb.

    • So jobs are getting harder to find? If that’s the case, then oh boy I’m glad that I have a job at my age! 😀 Although, I have to admit that it was really hard to find one.

  2. Dear Marshall,
    Thanks very much for your report! It’s really great.

    But there is still one thing I don’t understand. It is that the commercials have huge of shorts, and when they cover some, it will help the price go up, right? In this period, we have a lot of selling longs by both commercials and speculators. Is this the reason the price went down?  

    • Matthew,

      This is exactly the aspect that confuses everyone and a good question.

      Price does not necessarily go up or down just because short positions are being taken.  Remember, in a futures market there exists one short for every long.  That is why on my table I publish every week, I always tally the number of shorts and the number of longs to make sure they are equal.

      When a trader is buying longs there always has to be a short associated with that long in order for the trade to take place and be made in the market.  Same thing for someone “selling” or taking a short position.

      There is great liquidity in the gold and silver markets so getting an order through is not usually a problem.

      Other than that whether price goes up or down is a function of psychology more than anythying, I think.  If buyers are willing to pay more for a long contract then price will most likely go up, in other words.

      But more often than not, to answer your question, when speculators are buying longs (and the commercials are taking short positions opposite those longs) the price is going up so you could say that short positions are always accumulating by the commercials in a price rise.  

      And usually, when price is declining, the commercials are covering those short positions “buying” as it is called and the price is going down.

      Those are the two usual market dynamics.

      I have seen writers talk about short covering in a price rise and that is not true adn tells me they do not understand the function that is taking place right before their eyes.

      If you go back in the articles and see my tables, particularly since mid August when silver started about $27.40 to its high around $35.40 a 2-3 weeks ago, you will see that the commercial’s short positions increased from 71,199 to 93,315 and also during that timeframe their long positions were decreasing as they were taking massive profits.

      Now, the other aspect is whether a sustained rise in the price forces a short covering by the commercials.  There are differing opinions on that but it makes logical sense, however, you never ever see the evidence of that short covering in the numbers because as the trader might be covering lower priced shorts they also happen to be buying higher priced shorts otherwise the longs would not be able to complete their contract.  Otherwise, one would have to believe the commercials leave their shorts out there at a lower price and there are some commentators who believe they do, to whatever degree those shorts are “trapped”.

      It took me quite a while studying the COT reports to finally realize all of the dynamics in the market.  It has a lot of traders and they all want to make money but some see money to be made in going short or going long and all these traders whether speculators or commercials do not always agree within their respective categories as to how to place those bets.

      To answer your last question.  My gut feeling about this last price decrease is that there is less belief that price is going to increase so speculators are less willing to place long bets and increase the price, particularly because of the recent huge short position of the commercials.

      That is the market psychology that I am referring to above…  It is not fear yet on the speculators part because the commercials did not have to expend all that many shorts in the price drop.  If it was fear then we might have seen a price drop of $2 or more as the specs would sell their longs much more easily to secure profits or trim losses.


  3. The commercial’s paper silver trick won’t work forever because by suppressing silver’s price, more people will be able to buy a lot of silver and in the end, they will eventually get crushed by their own trick. The cartel is just shooting itself on the foot by lowering silver’s price.

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