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A
Critical Point ? SILVER
WEEKLY COMMENTARY May
13, 2008 By : Theodore Butler |
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Here are a few brief
observations on the current market structure, as depicted in the most recent
Commitment of Traders Report (COT), for positions held as of the close of
business May 6. On the surface, there were no big surprises, with slight
reductions being recorded in the total net commercial short positions in both
COMEX silver and gold futures. As last week’s
article predicted, there was some moderation in the true net concentrated
position of the largest traders in the silver market, due to actual contract
liquidation and the mechanical contract liquidation as a result of deliveries
on the May contract. For those keeping score, the true percentage for the 8
largest traders of the entire COMEX silver futures market (after subtracting
all spread positions) dropped to 79% from 83%. While I still believe that 83%
will prove to be a high-water mark, 79% is just as outrageous for a
concentration in any futures market. Incidentally, the
percentage of the entire market for COMEX gold futures (ex-spreads) held by
the 8 largest traders was also 79% (up from 77% the week before). In both
gold and silver, the true 79% concentration of the 8 largest short traders is
some 50% greater than the reported concentration bec Beneath the surface,
however, there were some unusual developments. In silver, the most notable
development was that the raptors (the 9+ commercials, other than the 8
largest traders) appeared to take delivery of the majority of the first
week’s silver deliveries. I hadn’t seen that before, and it does
raise the question of why take delivery? Just about any answer to that question
would appear to be bullish. But it was in gold that
the most notable developments occurred and also involved the gold raptors. For
the first time I can recall, the 4 largest gold traders sold short a
significant number of contracts (7,000) on a general price decline during the
reporting week. (While gold prices finished flat Tuesday through Tuesday,
three successive multi-month price lows were recorded during that period). This
raised the big 4’s net short position to a record 180,000+ contracts Never, in my memory, had
the largest gold short traders sold on the downside. This does increase their
determination to artificially depress prices. One of the standard lines from
the CFTC has always been that the large short traders can’t be
manipulating the price bec Even more interesting was
that the gold raptors (the 9+ commercial traders) bought what the big 4 sold
short. In fact, these raptors now hold a near record net long position,
against the big 4’s record short position. Talk about a dichotomy -
commercial against commercial. Since there is no precedent for this match-up,
there is no historical track record to offer guidance on the resolution. But
it does suggest we are at a critical point. Also suggestive that we
may be at some type of inflection point is how the market structure has
evolved since the highs in gold and silver, both in price and extremes in the
commercial net short positions, over the past couple of months. In silver, on a subsequent
peak to trough price decline of more than $5, the total commercial net short
position declined about 18,000 contracts (90 million ounces) from the COT for
positions held as of February 19. There were commensurate reductions in the
concentrated net short positions of the 4 and 8 largest traders, although
these concentrations are still obscenely high and provide clear evidence of a
manipulative crime in progress. As previously reported, there was no
liquidation at all in the big silver ETF, only increases in metal holdings. Near
term volatility and today’s jam-job to the downside aside, it feels
more and more to me that silver may explode shortly. In gold, the situation is
somewhat different. On a peak to trough price decline of $180, there was
significant liquidation both in the total commercial net short position in
COMEX futures of 70,000 contracts (7 million ounces), and in the big gold ETF
of another 2.6 million ounces. Yet, in spite of such significant gold
liquidation, the 4 largest shorts actually increased their net short
position, as indicated above, to the largest amount ever. This highlights the
issue of concentration in gold like never before. While some gold people
appear to be awakening to this clear proof of manipulation, most still
overlook it. Finally, I have reached a
critical point in deciding what to do next to attempt to terminate this
ongoing manipulation. Many of you have written to me asking what can be done
or offering suggestions on what to do. While I still believe that the CFTC
may comment on this issue shortly, and I have held back awaiting those
comments, I have less belief that there will be any substantive change from
their past directives. I do hope I am wrong. Anticipating that the regulators
will not move to terminate the clear crime in progress. I will shortly
disclose my new attempt and ask for your help in its implementation. While
there are no guarantees of success, I don’t think you will be
disappointed. Theodore Butler (No one can safely predict the future and
it’s possible that
Information contained herein is obtained from
sources believed to be reliable, but its accuracy cannot be guaranteed. It is
not intended to constitute individual investment advice and is not designed
to meet your personal financial situation. The opinions expressed herein are
those of the |
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