COMEX Silver COT Vulnerable to a Squeeze

HOUSTON – The DCOT graphs below are provided as a courtesy by request.  Essentially they support Alisdair’s findings in his essay below, but follow the format we have used since Day One following the Disaggregated CFTC Commitments of Traders reports.

Producer/Merchants/Processors/Users (The Producer/Merchants for short) net position, the silver trade in action, shows 20,331 contracts net short – a near record low amount of net hedging with silver changing hands on the COMEX at $18.79 Tuesday, June 3.

Producer/Merchants gross shorts shows 36,740 lots short – a near record LOW number of short contracts for the people in the silver trade with less than $19 silver.  For comparison the record low came in the October 3, 2006 COT report which showed 34,187 contracts short with $11.34 silver then. 

Swap Dealers Net position shows 10,691 contracts net long silver.   Mercenary banks who sell complicated swaps, knock-out options and other sophisticated derivatives to other banks, institutions and firms reporting a mid-range net position for silver. 

Swap Dealers report 31,683 gross shorts – a near record high number of bets that silver will fall in price.  The record since DCOT data is available in 2006?  March 25, 2014 at 38,602 shorts with silver then $19.97. 

Managed Money net position.   The trend following hedge funds, CTAs and other traders who trade futures for clients, not for their own book, reported a record net short position of 7,638 contracts.  A very rare condition to see the normally net long Funds net short and, as we will see, one heck of a lot of high-octane rally fuel in the next graph.

Managed Money gross shorts show an extreme record high 42,804 gross shorts.  Trend following works until it doesn’t.  The trend for silver has continued for a long enough time to turn the speculating street into momentum bears.  “Hang the fundamentals, hang value, go with the flow.”  The idea must be to ride the trend and then get out once it shows itself to be over.  Trouble is that the boat is now very, very crowded to one side and listing badly. 

Other Reportables net position shows  a mid-range 8,404 contracts net long.  These very large traders who trade futures for their own book continue to bet on value.

Other Reportables gross shorts show an unremarkable 6,208 contracts short.

Smaller Non Reportable traders reported 8,874 contracts net long silver in a rare argument with their larger Managed Money cousins. 

To get there Non Reportables showed 16,149 gross shorts.  (Not far from the record high 18,605 shorts April 26, 2011 with $45.45 silver then.) 

Imbalance 

In our view one cannot overstate how out of balance the silver COT has become.  It seems vulnerable for a violent runaway under the current set up, lacking only a real or imagined catalyst. 

Were we in business to give advice to others – we are not so inclined these days – we would say “Short silver at your peril.” 

That is all.