The sharp drops in precious metals prices have seen a big reduction in commercial net short positions on COMEX for gold – and particularly for silver – showing where the smart money thinks precious metals prices are headed.
Author: Lawrence Williams
Posted: Monday , 03 Oct 2011
LONDON – Some encouragement for the beleaguered silver investor may come from the latest CFTC figures on COMEX commercial net short positions for the precious metal. The figures as at Tuesday 27th September showed silver net short positions plunged to the lowest level since November 2008 – the point where the silver price started its runup from a little over $10 to almost $50 achieved at end April this year. Silver has since fallen back, at one time to around $26 but is currently, at the time of writing, a little over $30.80 an ounce.
Gene Arensberg’s Got Gold report has published an extremely interesting graphic (See article: Stunning Plunge in COMEX Commercial Silver Net Short Positions) plotting the COMEX commercial net short positions against the silver price which is reproduced below:
Do read the Got Gold report as it contains a number of interesting factoids relating to the reduction in COMEX short positions for both gold and silver.
The graphic shows that each time these commercial shorts fell to the latest reported level, this has presaged a sharp rally in the silver price. Now given the latest CFTC figures are from Tuesday, it is possible that the short positions have fallen even further as precious metals were relatively weak beyond then and the fall in short positions was certainly in part stimulated by the low metal prices. The actual figure for the fall in commercial shorts for silver was a remarkably large 16,446 contracts showing a balance of 24,262 contracts net short – this is the lowest level since late November 2008 at the height of the Lehman inspired global financial collapse and about the time the silver price bottomed.
For whatever reason though, the sharp fall in short positions on COMEX does suggest that the smart money is far less confident that precious metals prices are tending lower and is probably betting on increases – and given the comparatively small size of the silver market the big banks, institutions and hedge funds combined have the power to make this happen as long as its suits them to do so. The inference is that the traders feel that the latest fall in the silver price has been overdone and are looking for an upwards correction – which could be substantial, although silver, with its industrial market aspects remains more vulnerable than gold to adverse perceptions of the global economy.
But, of course, it isn’t only silver which has seen a sharp fall in short positions. Gold has too, although the gold market is less easy to be manipulated given its overall size in dollar terms. Here the commercial net shorts are reported as having fallen nearly 27% since early September when the gold price peaked. Total net commercial shorts on the latest figures stood at 166,683 contracts which is the lowest level since early May 2009.
With Asian and European stock markets declining sharply again so far today, gold in particular is already picking up climbing back above the $1,650 level while silver is showing a more minor improvement this morning after its drift downwards on Friday. As noted above silver is caught between its true precious metal status and its industrial status and perhaps ominously the true industrial precious metals, platinum – and particularly palladium – are looking weaker so far today. Platinum looks like remaining at a discount to gold as long as economic uncertainty reigns. Unless some positive economic news breaks this overall pattern could well continue.
iPad Verson – Bars of 1000 gram silver are seen in this picture illustration at a precious metal refinery in Istanbul: Murad Sezer / Reuters