Wednesday, December 01, 2010

Strange Silver Action in Futures

If there was an effort to “cap” silver at $28 going back into last week, we can say that effort has failed.  As we write this Wednesday morning at 07:00 CT silver has maintained its thrust above the $28 mark, currently edging back down through the $28.50s having run to as high as the $28.70s overnight.  New record highs for gold in euro terms (in the €1,070s) and fears of a full-blown currency crisis underpin the precious metals.  What we find unusual is that as silver advanced from $27.50 on COT reporting Tuesday, November 23 to $28.09 yesterday (COT Tuesday for this week) the COMEX open interest has fallen by a very large 14,895 contracts, from 147,685 to 132,790 lots open.  

So, as silver advanced a net 59-cents, futures traders closed out contracts covering about 75 million ounces.  That means that for every one-cent of increase over the past week, about 252 COMEX contracts evaporated, either stopped, covered, closed or not rolled into the March contract. 

We find it strange that the futures open interest has been falling as the price of silver has been ascending, but a falling open interest is usually inconsistent with an increase in the commercial net short positioning and suggests that the Big Sellers have seen fit to reduce their net short exposure even further.   We won’t know the details until Friday at 15:30, however.  

Just below is a short-term tracking graph for the largest silver ETF for reference.  Given the weird “action” in silver futures we optimistically conclude that a bona fide shortage of commercial sized bars of good-delivery silver may be surfacing now, as we have been expecting.  This, even as we must consider raising our trading stops for silver. 

If the image is too small, click on it for a larger version.  


While we may be encouraged by the lowering of the open interest on the rise in silver price, “strange” behavior tends to raise our caution level.  Luckily, we have a convenient gap on the U.S. silver ETF to key on with our trading stop placement and its equivalent in futures.  We intend to watch the trading closely this morning and decide on stop placement this afternoon.  

Vultures (Got Gold Report subscribers) can log in and navigate to the most recent full Got Gold Report or COT Flash report and then to the linked silver charts for changes in stop placement, if any, after 15:00 ET today, Wednesday.  

That is all for now, carry on.  



The Original
Vulture Speculator

Trading gold, silver and mining shares since 1980 with a focus on taking advantage of volatility extremes, Gene Arensberg analyses the markets through a basket of technical and fundamental indicators and shares his findings from time to time here at Got Gold Report. Mr. Arensberg has been quoted in the Wall Street Journal, Dow Jones MarketWatch, USA Today and dozens of other news organizations.

"I've been a huge fan of Gene and his amazing work for years..."

Brien Lundin, CEO, Jefferson Financial, Host of the annual New Orleans Investment Conference and Publisher of Gold Newsletter

Contact Us