Silver COT Report 8/24/12: Commercials Increase Net Shorts 38%, Add a MASSIVE 45 MILLION Oz to Shorts

Submitted by SD Contributor Marshall Swing

Silver COT Report 8/24/12

 

Commercials sold off a huge -4,651 longs on the week and added a whopping 4,424 shorts to end the week with 46.48% of all open interest, a minor change of +0.35% in their share since last week, and now stand as a group at 162,385,000 ounces net short, an increase of over 45,000,000 net short ounces, or an astonishing 38% increase in their net short position in a single week!

 

Large speculators gorged on 3,329 longs while being forced out of -2,284 short contracts improving their net long position to 106,000,000 ounces, an increase in their net long position of over 28,000,000 ounces from the prior week.

 

Small speculators also had their fill of 2,676 net longs and gave up -786 shorts for a net long position of 56,385,000 ounces an increase of over 17,000,000 ounces net long from the prior week.

 

The commercials sold longs big time this past reporting period as they knew they had big profits secured and written in the stars.  The previous two weeks they had bought about 4,100 longs and they sold that number plus over 500 more contracts for sizeable profits.  But remember, the COT week always runs from Tuesday to Tuesday so in this case from 8/14 to 8/21 pit close.  The price was about $29.25ish at Tuesday’s pit close this week and price now is about $30.73.

 

Buying massively and just prior, the commercials knew, without a shadow of a doubt, this price rise was coming and they were well prepared to profit from it.

 

The real question here is why sell so many longs when they could have waited a little longer and made even more profit?  Is that a signal they do not expect price to run much higher or just their algorithms saying it is time to take profits on contracts that were previously bought at lower prices?  Chances are they have profits at about $2 – $2.50 an ounce on 4,651 contracts.  If so, that is about $46.5 million to $58 million on their sale.

 

Remember, the 4,651 contracts they sold may not be the same ones bought in the previous two weeks and could have been purchased at slightly lower prices than those of the previous two COTs.  Prices have not been below $26 since November of 2010 and these longs sold were probably in the upper $26 range.

 

The combined total of longs picked up by the speculators was about 6,100 and it is very interesting that this far outnumbers the shorts picked up by the commercials at 4,424.  That means the amount of shorts covered by the speculators was far higher than the numbers show and that they have also bought a significant amount of shorts to go with their long purchases.  This means a subset of those speculators bought those shorts and they got creamed in the action after Tuesday of this week because price rose significantly.

 

As of this writing, price is at $30.73 which is $3.30 higher than the beginning of this mania 8 days ago.

 

It is also noteworthy there has been no serious attempt by the commercials to limit this long run.

 

The producer merchant’s short silver position stands at -211,620,000 ounces and they have not been this much net short since the magical date of February 28th of this year.

 

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:

 

[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!

 

Marshall