Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Silver Commercials Short Covering to Result Price Spike

Commodities / Gold & Silver Feb 07, 2008 - 10:52 AM GMT

By: Roland_Watson

Commodities Best Financial Markets Analysis ArticleOne major theme that unites a lot of silver investors is the matter of the major short sellers of silver. To be more precise, the well known fact is that the class of silver traders known as the commercials has been net short silver for literally decades. The chart below demonstrates this fact quite readily. The silver price is in green and the net commercial position in black (a negative number indicates a collective short position).


For the last 21 years and presumably longer, the net position of the commercial traders has been short on silver. Note this is the "net" commercial position on silver. Commercial traders do go long silver as well but the number of times they have taken the short side of a contract has consistently outweighed their long side on other contracts over a span of three decades or more.

Note further that I am not saying the market as a whole has been short silver for 21 years. Since every short side of a contract is balanced by someone taking the long side of the same contract then the market is always net zero in terms of contracts. Rather it is the price of silver and to a lesser extent the open interest that function as indicators of the market's sentiment towards silver.

With that background in mind, we come to the matter of the commercial short positions. One theory regarding this "eternal" short position by the commercials is that there is a scheme in place to keep a lid on the price of silver. This is particularly leveled at a small number of commercials who hold a high proportion of the short positions and are accused of collusively pulling bids or initiating waves of short orders to create a sell off. Other commercials will simply be hedging their production against price drops in the manner this market was created for but this small group whose composition is not revealed by the CFTC is singled out for criticism.

One conclusion of this theory is that a rising silver price will eventually force the shorts into covering their massive losing positions by going long silver at higher prices and thus creating a massive silver price spike.

The thesis of this article is that this has already happened and not once but twice and may happen for a third time. The silver shorts have already capitulated in other words. Take a look at the same chart zoomed into the past five years.

As you can see, I have a few things to say here. If a concerted short selling blitz was in operation to drag down the silver price then one may naturally assume the net commercial short position would increase negatively as the price of silver increased positively until the "job was done" and the silver price collapsed. This graph says differently.

Note that the NCSP (net commercial short position) increased steadily as the 2004 bull progressed. However, at a level of about -87,000 contracts and a full month before the silver spike peaked at over $8.50, the NCSP began to decrease until by the time of the spike it had fallen 5% to -83,000 and continued to fall -46,000 as the shorts took advantage of the silver price collapse to clear out their positions.

So, clearly the resultant price drop in silver cannot be attributed to a sustained attack by the commercials based on this graph. The implication of the graph is that the shorts began to cover weeks before the rise in the price of silver caused more problems for them.

Now look at the same situation in 2005-2006. Once again a peak in the NCSP occurred before the spike in silver prices at a NCSP of -87,000 contracts. But note the capitulation by the shorts began not weeks but months before the blow off. In fact, it occurred a full FIVE months before in December 2005. Also note that the capitulation began at the point where the old 2004 price highs were decisively taken out. In other words, a new run up in the price of silver was on the cards and the commercials knew it - abandon ship! Accordingly they reduced their short positions by a massive 56% as the bull ran riot.

This may also explain why the 2004 capitulation took place when it did at a silver price of $7.11, a line drawn out to February 1998 shows that this was the point at which the 2004 bull exceeded the old highs set by the Warren Buffett spike. Was this mere coincidence or an important breaking of old resistance levels?

Clearly from these two graphs, we see that the commercial shorts were not too keen on continually increasing their collective short position in the face of a silver buying mania. After all, they do not have bottomless pockets. But what of the current position?

Now we stand at a point where the previous highs of 2006 have been decisively taken out. The current NCSP stands at about -70,000 and so far shows no signs of capitulation. Will history repeat and the commercials shorts start reducing their positions about now? Perhaps, only time will tell but I would note that the previous maximums of the NCSP were both about -87,000 which suggests there may be further room it to increase. Also note that based on the two previous episodes this does not imply a silver price drop will automatically follow. I say this because when the NCSP rose from -70,000 to -87,000 in the two last bull runs, the price of silver increased 30% and 12% respectively.

So what is the conclusion of the matter? If there is collusion amongst certain traders to cap or smash the price of silver it is not apparent in the graphs presented. There may well be collusion but either they are doing it so ineptly as to be ignored or they are doing via other mechanism beyond the scope of this article.

 

By Roland Watson
http://silveranalyst.blogspot.com

Further analysis of the SLI indicator and more can be obtained by going to our silver blog at http://silveranalyst.blogspot.com where readers can obtain the first issue of The Silver Analyst free and learn about subscription details. Comments and questions are also invited via email to silveranalysis@yahoo.co.uk .

Roland Watson Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in