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Home GotGoldBlog VultureInReview VultureStocks Events Team Friday, September 30, 2011

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Stunning Plunge in COMEX Commercial Silver Net Short Positions


The CFTC just released its commitments of traders (COT) report at 15:30 ET for traders positions as of the close on Tuesday, September 27 and the data show a stunning drop in the large commercial net short positions in both gold and in silver futures. Continued For example, as silver fell $7.88 or 19.8% Tues/Tues, from $39.76 to $31.88, traders classed by the CFTC as commercial reduced their collective net short positioning (LCNS) by an extremely large 16,446 contracts to show 24,262 contracts net short. This, while the open interest fell by 10,089 to 102,014 open. Just below is our graph for the commercial net short positioning for silver futures on the COMEX.

Source CFTC for COT, Cash Market for silver. Not since November of 2008, during the heat of the 2008 Panic, has there been a smaller commercial net short position for silver futures. We can say that as of Tuesday, the largest, best funded and presumably the best informed commercial traders of silver futures had taken the price downdraft opportunity to very strongly reduce their short bets for the second most popular precious metal. We will have more commentary on this unusually large reduction in commercial net short positioning, including a 30,945-contract reduction in the LCNS for gold futures, in the technical graph comments for Vultures, which we intend to complete by the usual time this weekend. (Ed. Note added at 16:35 ET. The last time the combined commercial traders were this "small" on the short side of silver futures, November 25, 2008, the price of silver then was $10.33 the ounce. Therefore, with silver at $31.88 on Tuesday, having tested as low as $26.04 in panic liquidation selling the day before, we can say that commercial traders had about as much confidence in the price of silver going lower as they did at $10.33 silver three years ago. Incidentally, for Vultures, the relative commercial net short positioning also plunged to a very low and usually bullish 23.8% of all COMEX contracts open - the lowest LCNS:TO since October of 2008. (Graph below.) This is a very bullish COT report for silver. Let's see if the market "gets" that in the days and weeks ahead.)

LCNS:TO since October of 2008. (Graph below.) This is a very bullish COT report for silver. Let's see if the market "gets" that in the days and weeks ahead.)

***Further notes added at 18:31 ET: *** Factoids about this unusually large reduction in commercial net short positioning for discussion purposes.

Silver LCNS

-16,446 contracts net short is the largest 1-week drop in large commercial net short positioning (LCNS) since February 14, 2006 (-25,048 contracts then, with silver then $9.22). 24,264 contracts net short is the lowest LCNS since November 25, 2008 (LCNS was 23,682 then with $10.33 silver). 23.8% is the lowest relative commercial net short positioning since October 21, 2008 (23.2% then with $10.10 silver). As silver fell a net 19.8% Tues/Tues the large commercial traders reduced their net short bets by 40.4%. To find a larger 1-week drop percentage wise we have to go all the way back to March 25, 2003 (-47.7% then with $4.39 silver). The largest portion of the net short reduction was by the Producer/Merchants, the category which includes bullion banks. They covered or offset 11,213 down to 33,563 contracts net short the lowest net short position for the Big Sellers since December 9, 2008 (32,878 contracts net short then with $9.83 silver). Swap Dealers, the other commercial traders, increased their net long positioning for silver futures by 5,233 to 9,301 contracts net long. They more than doubled their net long position in other words. 102,014 is the lowest open interest for COMEX silver futures since August 25, 2009 (101,539 then with $14.28 silver).

Gold LCNS

Since September 6 (3 reporting weeks) gold has declined a net $224.95 or 12% (from $1,874.87 to $1,649.92 Tuesday) while the large commercial net short positioning (LCNS) fell by 61,031 contracts or 26.8%. 166,683 contracts net short is the lowest LCNS since May 5, 2009 (160,445 then with $896.75 gold). 465,414 is the lowest COMEX open interest for gold since February 1, 2011 (462,907 then with $1,341.10 gold). Since August 2, (gold $1,659.23), gold drove up to test the $1,920s and round tripped back to about $1,650 for this COT report. As it did the large commercial traders got the heck out of 42% of their net short positioning (from 287,634 to 166,683 contracts net short). So, in effect, since August 2 gold has dropped a net $9.31 or 0.6% but the large commercial net short positioning plunged a net 120,951 contracts or 42%. Gold is very close to where it was August 2, but the commercials are hugely less net short, 12.1 million ounces less net short at virtually the same price today. Producer/Merchants reduced their net short positioning by 19,531 or 10.7% for the week. Swap Dealers were down to just 4,270 contracts net short gold, having covered or offset 11,414 contracts for the week. Swap Dealers have reduced their collective net short gold positioning by a stunning 87,424 contracts or 95% just since August 2. 465,414 is the lowest open interest for gold since February 1 (462,907 then with $1,341.10 gold). That is all for now, but there is more to come. Posted by Gene Arensberg at 03:57:04 PM in Got Gold Blog, Vulture In Review

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russo.christopher33@gmail.com said... I never quite understand these reports. Why is it better if the short side is reduced. If large powers rigged a sell off so they could cover their shorts...doesn't that mean there are less buyers in the future as a short is by definition a open contract that must be bought in the future. Wouldn't silver bulls rather have a high price and a large short position. At the very least, if the price is low...I'd rather have a high short position...no? What is to say that if the price rises at all, the shorts won't come in in full force. For me, I'd rather have a huge short position. Am I missing something? Please advise.. Reply Friday, September 30, 2011 at 05:59 PM

Markus said in reply to russo.christopher33@gmail.com... Thanks for this excellent question. I never understood this phenomena as well. I guess its just an empirical relation, and because of the manipulation in the silver marked contra intuitive. May be Gene can explain better. Reply Friday, September 30, 2011 at 06:25 PM

Gene Arensberg said in reply to russo.christopher33@gmail.com... Hello russo.christopher, take a look at the silver chart above. Notice that when the LCNS reaches the lower limits of the chart, it usually corresponds with bottoms or near bottoms for the price of silver. We believe that the lower the LCNS goes, the commercial hedgers and short sellers have less confidence in lower prices of the commodity and vice versa. Best regards, Gene Arensberg Reply Friday, September 30, 2011 at 06:47 PM

Frank said... I am not a financial guru but my take is that if the commercial traders are reducing their shorts, then they must be anticipating that the price of the commodity will rise which would indicate a bullish position for silver. Reply Friday, September 30, 2011 at 06:21 PM

Alan said... I was under the impression that by crashing the price of a commodity the short positions could buy back their shorts at a lower price thus saving them millions / billions of dollars. Then when they are repositioned they will invest long and drive the price back up. Please help me out here as I have never studied economics formally. I'm just a gold and silver bug invested in these metals and trying to keep my head above the tide. Reply Friday, September 30, 2011 at 06:39 PM

Gene Arensberg said in reply to Alan... Well, Alan, some of the LCNS is legitimate hedging by producers, bullion dealers, and by bullion banks for clients, but some pretty much has to also be speculative. The part that is pure hedging is probably not very elastic. In other words the pure hedging part won't change much no matter the price. We are more concerned with very large changes in the LCNS, especially very large reductions in the large commercial net short positioning, which sometimes (not always) accompany major turning points for silver. this week's data certainly applies in the "large change" department. Note the additional factoids added at 18:31 ET above. Best regards, Gene Arensberg Reply Friday, September 30, 2011 at 06:58 PM

Crusso33 said in reply to Gene Arensberg... Hey Gene, I understand the chart correlation and appreciate your data. When silver hit near $50 and collapsed it looks like shorts covered all the way down, just like this time, meaning they are in control. Would I be right to assume, there really has never been any short squeeze according to this data as the LCNS never declined sharply while the price rose??? I guess I'm simply asking wouldn't the best of all worlds be a high price and and a large short position if you're a silver bull? Are are just supposed to work under the assumption that the large commercial shorts always are in control?? Reply Friday, September 30, 2011 at 07:58 PM

Gene Arensberg said in reply to Crusso33... How soon we forget, Crusso33. Late last year and early this year the commercials were steadily covering or offsetting silver net short positions while silver was rising steeply from the $30s to $49.75. If diligent, you can find our commentary about that period using the search function, including graphs of the period. Try searching using the words "Silver, COMEX, Retreat, Commercial" and shoot for the period between October and April. Sure they have taken advantage of the price moving lower too, but that is more or less expected. Regards, GA (Note: edited to make the search period from October instead of January as the short covering into a rising price began in October.) Reply Friday, September 30, 2011 at 09:11 PM

Jeremy Holley said... Silver will be $55 within 60 days- buy it now while it's on sale. Jeremy Holley Kansas City Reply Friday, September 30, 2011 at 07:33 PM

James Massimino said in reply to Jeremy Holley... Your exactly right imo ,my friend! Reason being ,I know we have waited entirely to long for the ctfc to put the limit rule into effect,why?? ,because of the exstreme ramifications it would of caused till now,the date we have been waiting so long for is Oct. 18 th.or 17 th.?? This is why so many commercials this past week have covered there short paper positions and tryed their very best to scare out the reg. traders in fear of the price going to mabe 0!!! When the so called banking cabals as Bix Weir referes to them have to reduce their gigantic short position to conform with the new limit rule that hopefully will go into effect on the oct date happens,if the price of silver were to be back at its all time high,where many beleive it should have been all along or even highewr,it would of caused so much caos and disruption to the entire market,including many banks going under to. So,even though the fact of rigged computer trading is an obvious fact to EVERYONE,they posponed this limit rule as long as possible to give the large shorts time to get back to reality. Jimbo555 says- Hopefully,but no guarentee this may help us with the price of silver being more correct ore closer to where a free trading market would have it. As the poster behind or above me just said buy all u can,this is a sale and by years end or even sooner silver will risae dramatically compared to where we are right now,I am praying that finally we get at least a bit of fairness in the silver/gold market for the first time in mabe 40 yrs thaT IT HAS BEEN MANIPULATED FOR THE BIG CABALS BENNIFIT ONL!! aMEN ,AND GOOD LUCK TO ALL,i ONLY WISH i HAD MORE CAPITOL TO BUY PHYSICAL SIVER RIGHT NOW BEFORE WE STARTthe movbe back up where we should have always been or even higher once others realise what an oppertunity this is and find out the real story behind the silver n gold.Many have no idea about any of this.What a shamew I think anyway. Jimbo555 October 1,2011 @10:29 a.m. Reply Saturday, October 01, 2011 at 10:29 AM

Brian said... I was hoping for a large reduction in LCNS but this is much larger than expected. I wonder what happened during the last 3 days of the week while the metal prices remained equally low? In general, I like to go on the bid for silver investments when silver LCNS go below 40,000. With LCNS at 24,000 and so many of the juniors at seemingly pitifully low prices (e.g Northern Tiger @ $0.16!), I think I am going to have to put some serious thought into a gameplan for next week.

Reply Friday, September 30, 2011 at 08:07 PM

Gene Arensberg said... Aye on NTR, Brian, I was one of the ones on the bid at .175 - in size. Caught quite a few too. Now we need some help from the Drill Gods to turn sentiment back around, otherwise it's a play for the 2012 season and it will be a long winter for Northern Tiger and for me... That's part of the drill for this kind of spec play, though, and it set Vultures apart from all the rest of the hot money. A true Vulture is willing to make a play for an extended period if there is good reason to do so. If that means two or three years, then so be it. Remember that the main zone (? can't remember the name of the zone) at Eskay Creek wasn't found until the 109th hole, but when they did hit it was a good one, more than 300 meters of high grade as I recall. Bam, the doubters ran for cover. I might could jinx them with this post, so of course I will take appropriate atonement counter-measures! As for the LCNS, the open interest fell to about 100K contracts, (a little lower), so it wouldn't surprise me if the commercials reduced exposure a bit more. Best regards, GA Reply Friday, September 30, 2011 at 09:05 PM

codematrix said... What most of your readers that have commented don't realize is that the heat is on JMP, from both the senate, law suites and the CFTF being pressured to impose position limits. JPM with the help of their criminal friends (CFTC and CME), orchastrated this raid on silver and gold, so that JPM can get out their massive short position. A meeting by the CFTC to impose positions was suppose to be held Oct 4 but got push out to Oct 18. The Senate is furious that it's being delayed and have called Gary Gensler to testify on Oct 6, as to why position limits have not yet being imposed. By law the CFTC must put impose position limits stated in the Dodd/Frank's law actived on Jan.

to testify on Oct 6, as to why position limits have not yet being imposed. By law the CFTC must put impose position limits stated in the Dodd/Frank's law actived on Jan. this year. JPM knows this and is deperately wanting out. This is extremely bullish in itself, let alone the COT report. Reply Friday, September 30, 2011 at 09:50 PM

Gene Arensberg said... Codematrix, on Sep 28, 2010, the combined commercial traders reported they were 65,413 contracts net short silver. As of Tuesday, Sep 27, 2011 (one year later) they reported being net short 24,262 contracts, a reduction of 41,151 lots or 63%. The combined commercials are a lot "smaller" than they were with $21.74 silver a year ago. If we look at the Producer/Merchant's class, one year ago they were 61,800 net short silver, and today 33,563 lots net short, a difference of -28,237 or "only" about 45.7% less than then. So what's the difference? The Swap Dealers have gone from 3,613 contracts net short a year ago to 9,301 net long today, a swing of 12,914 contracts. Any way one looks at the numbers the commercial traders are already a great deal less net short silver than a year ago regardless of the reasons. Regards, GA Reply Friday, September 30, 2011 at 10:13 PM

Crusso33 said... Thanks, I appreciate your help Gene as well as your work for GATA as I believe I have seen you there before on Bill Murhphy's site. I guess I just wish they still had a large short position to cover. That would actually make me more bullish. That said I picked up 19 10 ounce bars today...19 being that's all Chicago Coin Company had. Reply Saturday, October 01, 2011 at 12:45 AM

Markus said... First, just let me state that I am the "original" Markus that has been here for well over a year and is a subscriber here; I don't know if the above Markus is an intentional fake or an unintentional double. codematrix, I kind of agree, but not fully. JPM already had a similarly low short position a few months ago at ~33$. That they put a hell of a lot of shorts back on around 40$ and now closed them out at a profit, while making their game so blatantly obvious that Stevie Wonder could look through it like through glass. That suggests to me that they do not intend at all to keep their short positions low, as they continue to make money off this price suppression scheme. If they would want to get out, hell, at least they wouldn't make their game that obvious to everybody. Those guys still have the criminal government, the criminal regulatory agencies (CFTC head comes directly from Goldman Sachs - these are schemes undreamed of, as Gerald Celente puts it), and the criminal courts on their side. They are obviously confident that they have no consequences to fear. Reply Saturday, October 01, 2011 at 02:28 AM

Markus, zoggl said in reply to Markus... Sorry Markus the "original", I never posted so far on this blog; Its an unintentional double. I will do my posts under my pseudo Zoggl in the future. Reply Saturday, October 01, 2011 at 09:21 AM

Markus said... Also I'd like to not that the entire open interest on the COMEX in silver on each side is only about 15bn $, which is peanuts for these guys, especially with unlimited funds from the Fed and the fact that you don't even have to put up all that money because of margin trading. They can do whatever they wish to do to the price of silver. Only reason they don't push it back to 5$ and keep it there is because it would create a huge disparity between the paper and physical market, because all metal available would be instantly bought up below 20$ or something, but especially if it goes lower still. There is just too much money around these days. And that disparity would completely destroy confidence in the paper market even to the most brainwashed of investors that as of this moment still believe that markets actually move on reaction to news and fundamentals. So if confidence in paper markets is lost, nobody would play them anymore, thus ending the suppresion scheme, since the banks and central banks can't sell in the physical market because they already exhausted their supplies and can't just create more out of thin air at the stroke of a keyboard like they do with their paper. Reply Saturday, October 01, 2011 at 02:36 AM

James said... Hi Gene, I like your insight view about COT report which play important role on our understanding the market behavior. I have printed the Table you posted every weekend and keeped next to my computer as most important reference. But I havn't seen it this week, do you mind put it out when you got time? Thank James Reply Saturday, October 01, 2011 at 03:04 AM

Gene Arensberg said in reply to James... Coming right up, James. They should be posted by the time you read this. Best, GA

Coming right up, James. They should be posted by the time you read this. Best, GA Reply Saturday, October 01, 2011 at 08:03 AM

Andrew Jackson Fan said... My questions is what about deflation? It seems that if the U.S. and now China begin to slow down wouldn't this in itself push all commoditites further down? I am long pyhsical however and concerned that a slowdown especialy in China could push commodities much further. Silver has a big use in industrial productions of products and if there is a slowdown the demand will collapse and so will the price? I always thought that Gary schilling was a schill just like his name however after last weeks moves is he right? Reply Saturday, October 01, 2011 at 07:32 AM

Gene Arensberg said in reply to Andrew Jackson Fan... We are admirers of Andrew Jackson around here too... Deflation is the natural remedy for an over-levered economy, painful as it is. We may eventually get to the point where deflation becomes dominant across the entire world, but I think we can count on central banks and governments to first battle it with all they have. They can get pretty creative in their liquification efforts too. One problem with debt-based money is that it can disappear all too easily once confidence is lost. I like what James Turk said about gold in a deflationary environment. It will still be the best house in a bad neighborhood. Regards, GA Reply Saturday, October 01, 2011 at 08:15 AM

ata said... codematrix: "JPM already had a similarly low short position a few months ago at ~33$. That they put a hell of a lot of shorts back on around 40$ and now closed them out at a profit, while making their game so blatantly obvious that Stevie Wonder could look through it like through glass. That suggests to me that they do not intend at all to keep their short positions low, as they continue to make money off this price suppression scheme. If they would want to get out, hell, at least they wouldn't make their game that obvious to everybody." Marcus is right about JPM covering to get out of their shorts. I have no faith whatsoever in the criminal cartel which consists of the CME, JPM, and the US government. The lawsuit against JPM will drag on for years, and regarding position limits, this will drag on as well and I have no faith that anything will be done on Oct. 18. Reply Saturday, October 01, 2011 at 07:35 AM

ata said in reply to ata... If I may add, the only way for true free markets to exist is to have everyone at the Fed/JPM and company/the CME/and the US government to die a quick death....by whatever means. Reply Saturday, October 01, 2011 at 07:43 AM

Gene Arensberg said in reply to ata... Some numbers to go with ata's comments to codematrix: When silver found support on June 28, the LCNS bottomed at 29,168 contracts net short with silver closing then at $33.91. By Sep 6, with silver closing at $41.99 ($8.08 or 23.8% higher) the LCNS had risen to 47,306 contracts net short (an increase of 18,138 or 62%). Refer to the first chart above to see it graphically. Since Sep 6 silver has fallen a net $10.11 (to $31.88 as measured on Tuesdays, with a brief trip to $26.04), a net decline of 24.1% while the LCNS has fallen 23,044 lots or 48.7%. Bottom Line: The commercial net short position for silver futures is considerably lower than it was on Sep 6, but so is the price of silver. ... Relative to the total open interest, at a now 23.8%, the LCNS.TO is the lowest since the depths of the 2008 Panic (Oct 21, 2008, then 23.2%). Silver could still go lower, of course, but the Big Sellers are not acting like THEY think it will. Indeed, they are exiting the short side of silver at a pretty rapid clip. For each net dollar of price reduction, the Big Sellers covered or offset a large 2,279 contracts. That rate of change is very highly likely to accelerate as or IF the price falls from here, by the way. At this pace, it wouldn't be very long before the commercials would be net long, Swap Dealers are already net long, so we can say that the current pace is probably unsustainable. (A good thing for those on the long side because it means that we could be reaching a point where hedgers and short sellers become uncomfortable taking the short side. Heck I would too with the futures still in moderate backwardation, especially toward the longer dated contracts.) Regards, GA Reply Saturday, October 01, 2011 at 10:54 AM Show more comments... Comment below or sign in with TypePad Facebook

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