Friday, September 30, 2011

Stunning Plunge in COMEX Commercial Silver Net Short Positions

The CFTC just released its commitments of traders (COT) report at 15:30 ET for trader’s positions as of the close on Tuesday, September 27 and the data show 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. 

Just below is our graph for the commercial net short positioning for silver futures on the COMEX. 

Source CFTC for COT,  Cash Market for silver.

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 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. 

We will have more commentary on this unusually large reduction in commercial net short positioning, including a 30,945-contract reduction in the LCNS for gold futures,  in the technical graph comments for Vultures, which we intend to complete by the usual time this weekend. 

(Ed. Note added at 16:35 ET.  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 price of silver going lower as they did at $10.33 silver three years ago. 

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


 ***Further notes added at 18:31 ET: ***

Factoids about this unusually large reduction in commercial net short positioning for discussion purposes.


Silver LCNS

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).  




Since September 6 (3 reporting weeks) gold has declined a net $224.95 or 12% (from $1,874.87 to $1,649.92 Tuesday) while the large commercial net short positioning (LCNS) fell by 61,031 contracts or 26.8%.

166,683 contracts net short is the lowest LCNS since May 5, 2009 (160,445 then with $896.75 gold). 

465,414 is the lowest COMEX open interest for gold since February 1, 2011 (462,907 then with $1,341.10 gold). 

Since August 2, (gold $1,659.23), gold drove up to test the $1,920s and round tripped back to about $1,650 for this COT report.  As it did the large commercial traders got the heck out of 42% of their net short positioning (from 287,634 to 166,683 contracts net short). So, in effect, since August 2 gold has dropped a net $9.31 or 0.6% but the large commercial net short positioning plunged a net 120,951 contracts or 42%. – Gold is very close to where it was August 2, but the commercials are hugely less net short, 12.1 million ounces less net short at virtually the same price today.   

Producer/Merchant’s reduced their net short positioning by 19,531 or 10.7% for the week.

Swap Dealers were down to just 4,270 contracts net short gold, having covered or offset 11,414 contracts for the week.  Swap Dealers have reduced their collective net short gold positioning by a stunning 87,424 contracts or 95% just since August 2. 

465,414 is the lowest open interest for gold since February 1 (462,907 then with $1,341.10 gold). 

That is all for now, but there is more to come. 

(Edited Sunday, Oct 2, at 13:25 to improve the visibility of the graphs by request.)


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

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