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Deep Into The Danger Zone
The extreme market structure in COMEX silver (and gold) continues to get more extreme. In other words, the concentrated net short position held by the largest four and eight traders in COMEX silver continues to grow. The most recent Commitment of Traders Report (COT), for positions held as of Feb. 12, indicates the four largest short traders now hold a record position of 59,564 contracts, or almost 298 million ounces, That's 170 days of world mine production. The eight largest traders are now net short 73,987 futures contracts, or nearly 370 million ounces, That's 211 days of equivalent world mine production. Let me repeat, these are all records. Never have there been larger concentrated short positions in silver. Since this data comes directly from the COMEX and the CFTC, the figures must be assumed to be correct. Why would they make it up, since it makes them look so bad? The regulators should be ashamed of themselves to have allowed such a lopsided short concentration to develop. History shows they never would permit four large long traders to hold 300 million ounces of COMEX silver futures. After all, they charged the Hunt Brothers and their associates with manipulation when they held a position only a third the size of what the big shorts hold today. For whatever the reason, it is obvious that the regulators won't regulate when it comes to short side manipulations. But silver investors must still deal with the consequences of this manipulation. The good news, of course, is that the concentrated short position has kept silver prices lower than they would have been otherwise, affording accumulation at lower prices. Also good news is the super-bullish impact on price once the manipulation is terminated, as it must be eventually. The bad news is the potential of another sharp engineered sell-off, that enables the concentrated shorts to buy back a portion of their short position. But I don't see how it is possible for the entire short position to be closed out on a sell-off. It seems reasonable to conclude that this concentrated silver short position can't go on indefinitely. Sooner or later, something has to give. But what and when? The short answer is I don't know. I do know that commodity shorts, in general, have been under pressure never witnessed before, in every market possible, from energy, to the grains, to the softs, to the precious metals. In large part, the money-center banks guarantee, or even hold, a variety of these short positions. These money-center banks are under extreme financial pressure in many lines of their businesses. This raises the odds of a general short-side capitulation and panic buyback that could cause prices to melt up. Given its concentrated record short position, no commodity is structured to melt up more than silver. On the other hand, the danger to the concentrated silver shorts is so extreme that it is almost imperative that they rig one more, and maybe final, sell-off to relieve some of their obscenely large short position. The only question is, can they do it? The course for the silver investor seems clear. Fully paid for, real silver held with a very long term perspective holds as much future promise as it has over the past few years. Such silver will allow you to ride out any near term turbulence and participate in the long term gains. |
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