Submitted by SD Contributor Marshall Swing:

Silver COT Report 10/19/12

Commercial paper stacks increased a mere 37 longs on the week and a smallish 127 shorts to end the week with 45.80% of all open interest, a decrease of -0.26% in their share since last week, and now stand as a group at 285,470,000 ounces net short, which is a increase of 450,000 net short ounces from the previous week. 

 

 

Large speculators reversed their buying trend by reducing their long position by 357 longs and added also covered  -660 short contracts increasing their net long position to 200,640,000 ounces, an increase in their net long position of  1,515,000 ounces from the prior week.

 

Small speculators sold off a net -447 longs and covering -234 short contracts for a net long position of 84,830,000 ounces a decrease of over 1,000,000 ounces net long from the prior week.

 

Silver is right at or above $32 as of this writing.  It was also about $32 on September 4 of last month.   However, on September 4 of last month the commercial net short position stood at 224 million ounces.  Today, and at the same price the commercial net short position is just over 285 million ounces.  Does this knowledge give us an indicator of what the near term future holds for the silver price?

 

Silver was down just about $1 during the reporting period and much more since the period ended on Tuesday afternoon but for the second week in a row the change in open interest positions on the part of the commercial traders does not reflect the movements we would expect to see in a price decline of this magnitude.

 

As of this afternoon, silver is down almost $3.50 from its most recent high almost 14 business days ago and yet large speculator’s net long position has increased while the commercials net short position actually increased as well.  Usually when the price drops this much in a week or more we see significant declines in commercial net short positions.

 

We also saw an increase in overall total open interest by 979 contracts so the trader’s interest in this market is not waning such as one would normally expect to see in a period of declining price.

 

So what do we make of all this?

 

I believe firmly that when the market exhibits significant price declines yet open interest positions remain virtually the same or even increase that there exists significant turnover in contracts yet the open interest is being bought back at lower price levels.  For instance, where some large and small specs are selling big long positions there are other speculators rushing in to buy back those positions at lower prices.  Hence this appears to be a war fought by speculators against speculators and not commercials against speculators.  This always happens in a declining price scenario as the speculators try to guess the bottom so they can be the first to reap profits from being the first to go  long in a rally.  Risky guesswork!

 

If this is true, then the commercials are sitting pretty with a significant cache of short contracts in hand at higher prices and much in the money and when they decide to unload those contracts there will be a dramatic decline in price.  They probably will not allow much of a long rally before unloading those contracts and booking the profits.

 

The so-called raids or price declines we have seen recently could be no more than commercial HFT transactions to the downside to get the speculators to play against one another to the downside while the commercials sit back and relax with their huge net short position intact and growing ever more in the money.

 

Such huge net short positions on the part of a few traders should not be allowed.  Period.

 

They have the innate ability to easily distort honest attempts at true price discovery.

 

The Producer Merchant commercial trader category stands at about 230 million net short paper ounces.

 

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: http://www.cftc.gov/Contact/index.htm and email addresses as well:

 

ggensler@cftc.gov  Chairman Gensler

 

bchilton@cftc.gov  Commissioner Chilton

 

jsommers@cftc.gov  Commissioner Sommers

 

Somalia@cftc.gov  Commissioner O’Malia

 

mwetjen@cftc.gov  Commissioner Wetjen

 

dmeister@cftc.gov  Director Meister

 

See you next week!

 

Marshall

  1. I’m increasingly becoming concerned that there is some kind of late October surprise or post election surprise being plotted.  As part of this, many politicians are tight lipped about the seriousness of the Euro and US fiscal situations.  The PDs and CBs of the world are doing their best not to make any bold statements or having any bond yields soar.  At all costs, digital money must be thrown at the fire and manipulation must continue until that big event.

    There is no way that silver breaks down below $30/oz, because the buying strength is absolutely incredible lately.  The best they can do is keep it in a range trade above 30. 

    • Continuing purchases of ammo by the DHS, legislation to have FEMA make plans for mass deaths, and who knows what else the government is plotting. It all doesn’t bode well for the poor and middle class. The wealthy will dissapear offshore or into bunkers to ride it out.

  2. Missing something here.  You said “a significant cache of short contracts in hand at higher prices and much in the money and when they decide to unload those contracts there will be a dramatic decline in price”.  That doesn’t make sense to me.  Covering short contracts = buying and should raise the price.  The only way they can lower the price is making new/more short contracts.  NOW using HFT they could flood the market with new shorts over a minute or two, waterfall the price and then buy back all their new shorts (and then some) at lower prices…. but they’ve got to increase their short position first to get that going.

    • If those shorts were bought at $35 and the price is now $32 then each ounce is $3 in the money.  The long that matched up to that short at the point of contract has long since been sold.

      Whether it is buying or selling, or long or short, makes no difference in the price calculation.  If you take a very significant number of shorts that bought in at $35 and cover them at $32 (same as removing them from the price calculation) then the overall price drops.

       

  3. I have never seen the commercials reducing their silver shorts positions. Even with their paper silver tricks, the physical silver’s price is separating from the market thanks to the premiums. Silver may cost 20$ per ounce in the future, but its premiums are going to be way higher than that amount.

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