Friday, August 15, 2014

COMEX Swap Dealers Remain Hugely Short Silver Futures

Silver Lots of Big Bars at SLVUpdate 1:  Adds additional commentary at end and several graphs. 

HOUSTON --  Looking at the legacy COT report for silver futures, and tracking the traders the CFTC calls “commercial” – including the Producer/Merchants and Swap Dealers combined into a single category (with a total of 45 traders reporting commercial long contracts and 54 reporting commercial shorts) – we can see in the data table below that on July 8 silver closed at $21.02.  On July 15 the silver LCNS (large commercial net short position) peaked at 58,696 contracts net short. 

Since then silver has declined a net $1.12 or 5.3% (from $21.02 to $19.90 as measured on Tuesdays) while the commercials have covered or offset 14,970 lots or 25.5% of their collective LCNS. 

Silver -5.3%,

LCNS -25.5%,

4 reporting weeks. 

 

Data table LCNS Silver, combined commercials positioning.

20140815 Silver LCNS data table

Here’s what it looks like in our more familiar graph form. 

20140815 Silver LCNS Graph

That’s a modestly accelerated pace of LCNS reduction.

What about the mercenary banks that the CFTC labels “Swap Dealers” (SDs) net and gross short positions?  You know, the gang of traders we have identified as having an unusually large gross short position on both gold and silver, but especially on silver…   

Well, look at the graph for the SD net position from the Disaggregated Commitments of Traders or DCOT report:  (SDs report 15,910 contracts net short, but that’s down quite a bit from July 8 when it was 25,245 contracts net short.   Here’s the graph for the NET position (longs minus shorts).   

SD Net Position Silver Futures (Swap Dealers still showing a significant net short position for silver futures). 

20140815 Silver SD Net Graph

And how about just their gross shorts on silver?  Here’s the graph and the numbers. 

SD Gross Shorts Silver Futures  (Still Extreme.)

20140815 Silver SD Gross Shorts

As anyone can see, the SDs remain overly short silver futures.  As of August 12 the SDs reported holding 48,978 contracts short silver (the equivalent of about 245 million ounces).  That’s a lot (and still a bunch of short covering horsepower) but it’s actually down from 58,381 contracts July 8 with silver then with a $21 handle.   

Remember up above we talked about 54 "commercial traders" reporting shorts in the Legacy COT report?  Only 15 traders of that 54 are classed as Swap Dealers and those 15 mercenary bank entities are collectively short 245 million ounces of silver metal. 

Now, we're virtually certain that they do not now own and never will control that much silver metal.  $4.8 billion worth of silver from 15 high-rolling, short-selling prop-trading bankers, probably hedging the other side of a trade, but for who we cannot know or guess and using what vehicle is also an unknown to us outside observers. 

All we know is that the Swap Dealers found reasons to report holding a record high number of short silver futures contracts and it's something we have never seen before (from the Swap Dealers, ... remember it was the Producer/Merchants that were so bloody short silver in 2010 and 2011 in the last squeeze ... then, as we have discussed many times in these pages,  more than 62,000 contracts!  ... More than 310 million ounces.).   

Anyway, today it's $4.8 billion worth at $19.55 silver held by only 15 entities.  Is that about $319 million each, divided equally?  Again, we have to wonder what their collective "pucker factor" is with that many contracts that absolutely have to be bought back at some point with only the price as an unknown...

We end here for the evening. 

More to come by Sunday evening in a Update that will post here. 

Update 1:  Discussion continues… 

Silver price graph… 

20140816 Silver Trading hourly

 

If you have noticed that silver seemed to have a thumb on the scale over the past couple weeks as even small bounces were opposed (amid reports of backwardation), we presume by the already way over sold Swap Dealers. 

They have to be paranoid at this stage, especially with geopolitical interference to their campaign (of talking their book lower, planting bearish news articles and pressing on futures at the same time). 

Just one thing about that.  The Goldman Swaps Sachs and Morgan Stanley Swap Dealer traders, all 15 of them who reported their positioning, are awfully lonely or will feel that way if there is a sudden, rip-roaring counter-rally.  (Of course absent that rally the traders are currently “right,” betting on the downside, probably as long as they themselves keep the pressure on.  Under $20 silver is getting near a can’t pass up bargain for the second most popular precious metal in our humble opinion.) 

20140817 Silver M 1981

You see all those other traders, represented below by the various charts? (reduced here for effect).

20140816 Silver Futures Graphs Montage

Just remember that in the event a counter-rally does get underway, those other traders won’t hesitate to pile on in a big way in a short murdering free-for-all. 

Traders are not known for being generous or sympathetic.  They ARE known for being ruthless when there is a “lay down” on the table.   

Traders exasperationYes, squeezes are rare.  But they do happen, even to the largest of the largest traders of gold and silver futures. 

In fact, it seems it is always the largest of the largest that become so arrogant they think they can push entire, global markets around with limited numbers of futures, forwards, swaps, and other paper derivatives. 

In fact, sooner or later the futures market answers to the much larger and supremely dominant physical and forwards markets which clear OTC.  Futures are a means to hedge them, not drive them. 

It’s in part because of that possibility we track and watch and bide our time… waiting on a bona fide short squeeze to develop, just like it did in September of 2010.    

Vik small

"A squeeze is a worthy thing to watch for and wait for, but while we cannot count on one happening in advance, we CAN count on the fact that all those Goldman-sponsored Swap Dealer shorts DO have to be bought back, so every single one of them represents latent buying power and motivation to the holders to clear them out."  

That is all. 

 

20140817 SD shorts graph

       

 


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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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