Monday, July 30, 2012

Most Important Silver COT Chart for 2012

Mr. Arensberg wanted me to share with you-all the chart below, which he says is the “most important chart for the CFTC commitments of traders (COT) data for silver so far in 2012.”  Gene already commented on the very bullish positioning in the Vulture subscriber charts over the weekend, but he wanted a visual representation of it available.

The chart is of the short positions by the traders the CFTC classes as “Managed Money,” including hedge funds, Commodity Trading Advisors (CTAs) and other funds that trade futures for clients.  They are normally on the long side for silver futures, but over the past couple months they have been adding more and more short positions up to a new record high for the entire disaggregated COT report data going back to 2006.     

Here is the chart:


Source:  CFTC for COT, Cash Market for silver. 

As of Tuesday, July 24, with silver at $26.93, Managed Money traders held the highest ever number of bets that silver would fall in price (17,575 short contracts).


The high Fund short position is a big reason that the Managed Money net long position is so very low, at just 3,015 contracts.  Their shorts offset a slightly higher number of longs. Here is that graph:


That is a very, very small net long position!  And, if you believe like we do, a very low Managed Money net long position means there is a lot of buying horsepower sitting on “go” for when the Funds think a new rally is getting underway. 

Mr. Arensberg is convinced that the Funds have built up that record high short position as a kind of insurance – a “just in case hedge” to protect them if silver broke down through the super-important long time technical support level of $26. (But silver did not break down through $26, did it.)

He believes that if silver were to move back higher, up through about $28.50 or maybe $29 or so, the Funds would be quick to buy back those short bets on silver – because it will have broken out of a bottom consolidation pattern. 

What is more, once it is clear that the Funds have started closing out all those record high short bets, all the regular traders on the N.Y. COMEX will be trying to front run that short covering, sort of like switching on an afterburner.  Then, when that is going on the other shorts might be trying to take profits, buying back their shorts all at the same time with the algo traders trying to jump on it for the ride.       

“It could be an explosive move if that happens,” Gene said.  “We could even see an offer vacuum for a little while, which we have not seen since January,” he added. 

An offer vacuum is the opposite of a bid vacuum.  They occur when many traders suddenly pull all their offers because the price is going vertical. 

Gene isn’t predicting it as such, but he says it is definitely something to keep an eye out for and silver is not that far under where the fireworks ought to start, currently at about $28.

All I can say is … it’s about time for a silver reversal, isn’t it?   

Colette Chapman for Got Gold Report


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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