COMEX Mercenary Swap Dealer Banks Way Short Silver Too, Vulnerable to a Squeeze

HOUSTON — Just for the record for those who have read our update on the gold futures positioning by the main combatants on the COMEX – where we show that it is the mercenary Swap Dealers with the most and largest gross short positioning for gold and suggest they are vulnerable to a short squeeze under the “right “ circumstances.  (As in the other COMEX traders deciding to press gold at the right time, forcing the Swap Dealers to cover in haste … that’s one example of many, many one can conjure up). 

Well, let it be known that it is also the same Swap Dealers who have built up a very high gross short position in silver as well. 

You know, if someone with quite a lot of firepower were to take a good look at the Swap Dealer combined positioning in gold and silver, and exploit that by pressing the metals a bit, they sure might have a squeezing good time of it.  The gross numbers are staggering for the Swap Dealers as we will see in a moment.    

So how big is the Swap Dealer short position for silver (we already know their overly short gold positioning).   Well when we are talking net positioning (longs minus shorts) we find the Swap Dealers near record net short to the tune of 23,592 COMEX contracts – roughly equivalent to 118 million ounces of silver.   At $20.89 the ounce that’s roughly $2.5 billion at full face value. 

Swap Dealer net position, silver futures.  (All graphs source:  CFTC for COT data, Cash Market for silver, GGR.)

When we are talking gross shorts for silver futures the Swap Dealers are also very close to a record high, showing a whopping 55,410 COMEX silver shorts.  (Last week’s COT was the DCOT record high at 58,381 gross silver shorts.)  Swap Dealers hold a combined gross short position of 277 million ounces, or roughly $5.8 billion face value (notional).  Does that sound like the 15 Swap Dealers reporting shorts are over stretched on the short side a little?  Isn’t that ($5.8 b / 15 = roughly $387.7 million per trader if divided equally).  $387 million?  Per trader?  Really?   I wonder what their gross short “pucker factor” is about now, being so extended to the short side in both silver and gold… 

Swap Dealer shorts graph, extremely high presently.

The only other class of traders that show a high net or gross short position are the Producer/Merchants – the silver trade itself.  They are supposed to have a high net short position and high number of shorts most of the time because they are mostly hedging.  Let’s look closely at the NET position graph of the Producer/Merchants and think this through a little. 

Producer/Merchant silver net position futures.  Actually quite low presently.  The higher the blue line the lower the net short position in this particular graph.   

The PMs show a net position of 35,104 contracts net short.  At first blush that might sound high, but when we examine the graph more closely we learn that most of the time the PMs hold a much higher number of hedges – more like an average closer to 50,000 lots.  Let’s call that the mean number of hedges for the Silver Trade placed on the COMEX.  So it follows that the PMs are showing a LOW number of hedges at the moment with silver near $21. 

What about the Producer/Merchant’s gross shorts?  Well, as it happens they just reported a pure short silver position of 46,797 lots.  In the graph below we get an idea that the current PM short position is pretty unremarkable and near normal.  Compare to the wild, over-reach by Swap Dealers in the graphs above to see a class of traders now vulnerable.  (At least we think so.)

Producer/Merchant gross shorts silver futures. 

It wasn’t very long ago that the Managed Money traders, hedge funds, commodity trading advisors (CTAs) and other Funds who trade futures for clients held a super high gross short position.  Indeed, on June 3 they held a DCOT record high 42,804 shorts.  Not  anymore!  Over the past six COT reporting weeks they have covered a huge number of that formerly giant short position, all the way down to a now small 9,418 shorts.  (We can see that the Swap Dealers have taken their position on the short side of silver, rightly or wrongly.)  Here’s the MM gross short graph to show that dramatic and rapid short covering by Managed Money traders.

Managed Money shorts silver futures.  Bam! Talk about rapid and determined short covering!

So, we conclude that the mercenary Swap Dealers – the Goldman’s, the Morgan Stanleys, etc., … the predatory banks and Funds that are now strongly and we think overly short silver (and gold, at the same time).  Under the “right” circumstances,  … you know, similar to the 2010-2011 Swap Dealer short squeeze we have talked about elsewhere,  we just about have to conclude these guys are vulnerable. 

In our gold futures coverage we concluded with:  With the Gold Trade (Producer/Merchants) having so few hedges now, and the mercenary Swap selling banks so overly short … and now with Managed Money showing us all they were not running for the hills last Monday and Tuesday, but instead more or less held their ground for a fight.  Would anyone actually feel comfortable on the short side with all the geopolitical smoke in the air and with gold equities showing some spunk recently?*

Just asking, and this is just the COMEX futures market. It does not include the larger, but more opaque physical and forwards markets OTC and all the other bourses worldwide which could become more aggressive most anytime now.  July is almost over, you know.   

A squeeze remains possible, if not even more likely than last time in our view.   

Our view is that gold and silver are in the formative, difficult for many traders to believe, stage of a nascent, but powerful bull market.  We believe that gold and silver are beginning to price in something ahead … something we cannot yet see clearly, but nevertheless is real enough to underpin this market with ample buying pressure, even into managed sell downs. 

This is certainly not, repeat not, the kind of environment we would personally feel comfortable on the short side of.  Not even for a lightning fast minute.  Got that? 

Our view remains the same for silver given these data:  “Short silver at one’s peril.” 

That is all.