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Old 10-21-2011, 10:03 PM   #1
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Special GGR Excerpt – Silver COT Most Bullish in Eight Years

Quote :
Excerpt from the October 16 Got Gold Report
Silver COT Most Bullish in Eight Years
The Commodity Futures Trading Commission (CFTC) issued its weekly commitments of traders (COT) report at 15:30 ET Friday, October 14. The report is for the close of trading as of Tuesday, October 11. is focused on the changes in positioning of the largest futures traders in that report – the traders the CFTC classes as “commercial,” including the bullion banks, large dealers and swap dealers combined. We refer to those commercial traders as “LCs” for “Large Commercials,” or sometimes the “Big Sellers,” because they are the largest sellers of gold and silver futures.
Needless to say that now, with silver near the $32 mark, we are currently very near the lowest commercial net short position for silver futures since the bull market began in 2003. As of Tuesday (and as of the prior Tuesday), COMEX futures veterans the CFTC classes as “commercial,” including the bullion banks and the Swap Dealers combined are not positioned as though they believe that silver has very much downside action left in it.

Part of the reason for that is that the more mercenary Swap Dealers currently hold the largest net long position in silver futures they have held in our records as we will see in a moment.

As we do with gold, we compare the nominal silver LCNS to the total open interest. We think that gives us a better idea of the relative positioning of the largest hedgers and short sellers – the Producer/Merchants and the Swap Dealers combined into a single category – compared to all the other traders on the COMEX.

When compared to all contracts open, the relative commercial net short positioning (LCNS:TO) for silver rose for the first week in five, from an extremely low and very bullish 18.7% to a higher, but still extremely low and should be very bullish 20.9% of all COMEX contracts open.

The silver LCNS:TO graph is just below.

Source CFTC for COT data, Cash Market for silver.
Amazingly, five reporting weeks ago the silver LCNS:TO reached 41.7%, the highest LCNS:TO of the year, with silver then in the $42 arena. We’ve wiped out roughly $10 or, call it 23.5% in price since then, but goodness, look at the huge, enormous, historic net 26,478-contract (56%) get-out of the short-side of silver futures by the Big Sellers as a group since then (no matter if part of that is because one class of commercial traders went net long in a big way – it counts, brothers and sisters). That has the LCNS:TO down to levels not seen since silver traded under $5.00 (actually under $4.50) the ounce eight years ago!

However one wants to look at it, and regardless of what silver does very short term in the days and weeks just ahead, the graphs above are screaming at the top of their lungs like a bullish klaxon. The graphs tell a tale of longer-term opportunity with a high degree of confidence. There are never any guarantees in this business. The price of silver is governed by lots of factors, not the least of which is the much larger and more opaque physical and OTC markets in London, Zurich, Tokyo, Hong Kong, and lest we forget, New York, etc. The price of silver is affected by more than just the futures markets by themselves, in other words. But, friends and fellow Vultures now hear this:

Under these extraordinary COT conditions, when so much of the bullish firepower has been swept out of the futures market (and is therefore at the ready to return at the first sign of a new uptrend) – when even after a huge exodus of speculators we can document the apparent reticence of the commercials to take on more downside bets - when indeed one class of commercial traders now holds the largest net LONG position in years – and after all that, with the price of silver still sporting a $30+ handle, it is most definitely a sign that the normal Big Sellers of silver futures are not, repeat not confident in the price of silver falling all that much farther. If their positioning in futures is any guide, we have to note that the Big Sellers have very strongly and decisively positioned for the opposite.

Look closely at the charts above – both of them. Note the few times in the past when the LCNS and the LCNS.TO have reached even close to this low on the graphs and see if there is one and only one common occurrence following those spikes down so low (and continuing for quite some time thereafter in each and every case). And how about if we look farther back in time than just those two graphs?

If we look back to the beginning of the bull market for silver, all the way back to the last time that the silver LCNS touched as low as it has this past two weeks, we see the same story, except it is reinforced by just how rare it is for the LCNS to travel under 25,000 contracts. Very simply, the market has sold out and is attempting to re-set very similar to the way it did after the 2008-Panic, but at a much higher starting level for the price, apparently.

As we are wont to say at times like this, it would be arrogance of the first order to predict the very near term direction of the price of silver. The market is unsettled, finding its footing, potentially still hyper volatile and so on, but if pressed to wager, we’d give very high odds that the price of silver will be considerably higher in price two months and four months from now. The charts above suggest that we should expect that, so we do indeed.

That is all for now, but there is more to come.

Last edited by PMBug; 10-21-2011 at 11:27 PM. Reason: add quote tags - reduce to snippet
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Old 10-21-2011, 11:28 PM   #2
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