Friday, March 02, 2012

COMEX Large Commercials Step Up Opposition Ahead of Wednesday Silver Plunge

SOUTH TEXAS -- A quick look at the positioning of the large commercial traders on the COMEX for silver futures reveals that the combined commercial traders (in the legacy COT report) increased their net short positions (LCNS) by 5,405 contracts or 13.8% from Tuesday to Tuesday to show 44,593 contracts net short as the silver price increased a big $2.62 or 7.7% from $34.27 to $36.89.  The COT report data cut off one day prior to the large $2.25 selloff on Wednesday, February 29.

The LCNS is the highest since September 13, 2011 when silver closed at $40.96, a few days before plunging in a vertical cascade to a $28 handle then. (Shown in the graph below.)

Silver combined commercial net short position (LCNS), source CFTC for COT, Cash Market for silver.



From December 27, 2011, when silver closed at $28.67, to Tuesday, February 28, the combined commercial traders’ net short position increased from an extremely low 14,132 to 44,593 contracts net short, according to data supplied by the CFTC (70.7 million to 223 million ounces).*  That is an increase of 30,641 lots or about 215%, but the increase is measured from a 10-year low in commercial net short positioning. 

A majority of the increase in LCNS (15,864 lots or 79.3 million ounces) occurred ABOVE $33 USD and after January 31, 2012 when silver closed then at $33.12. 

For comparison, during that same December 27 to February 28 nine-reporting week period, very large traders the CFTC classes as Producer, Merchant, Processor or User, the category which includes the largest dealers and bullion banks,  increased their net short positioning by 16,510 contracts (82.6 million ounces) or only 50%, from 32,919 to 49,429 COMEX contracts net short. 


Net silver futures positioning by traders the CFTC classes as Producer, Merchant... in the weekly disaggregated COT report. In this graph the position shows as a negative number, so as the net short position increases the blue line falls and vice versa.   

Interestingly, 12,748 contracts (77%) of that increase occurred with or after the January 31 disaggregated COT report, when silver closed then at $33.12.  So much of the "increased opposition" from the Producer-Merchants also occured at or above $33.   

As of 15:30 ET Friday, silver looks like it will close near $34.75 on the Globex aftermarket, down about six bits ($0.75 or 2%) for the calendar week, but off more than $2.60 from its Wednesday breakout high of $37.43.  Very volatile silver is up just under $7 so far in 2012, an advance of about 25%. 

Silver closed out 2011 at $27.78 on the Cash Market.     

We will have more about the COT in our linked charts for subscribers by the usual time on Sunday evening (by 18:00 ET). 

*A significant portion of the LCNS increase was actually a decrease in net long positioning by traders the CFTC classes as Swap Dealers.  Swap Dealers recorded a record net long position on December 27, 2011 of 18,787 contracts (93.9 million ounces).  As of Tuesday, February 28 they had reduced that net long position by 13,951 lots ( 69.8 million ounces or 74%) to show 4,836 COMEX contracts net long.    


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.

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