The hottest commodity of the week was silver once again, but the majority of the upwards price movement took place after Tuesday (the COT is always from Tuesday to Tuesday, thus it is hard to tell what the current structure of the COT looks like. Similar too recent weeks there are subtle structural changes taking place, this week in the 4 largest banks net short position which was only slightly reduced. This week’s COT report doesn’t say much relative to the past month. We will have to wait until next week to see more dramatic changes as it is highly likely due to a new 30 year record closing price. Silver investors can be reassured they are winning the battle against the commercial banks no matter the degree of manipulation that is taking place as the laws of supply and demand are winning out. For those who unaware of the fundamentals (production less consumption), Silver has the single best fundamentals out of any commodity in the CRB yearbook, which has been running large annual deficits for several decades. Above ground silver as of the year end 2009 was estimated to be between 800m-1b ounces of above ground silver. In other words, it has become scarcer than gold, at least above ground, due to many factors, including the fact that silver wasn’t economical to recycle as a result of the same manipulation that is taking place today. The big commercial banks, however, are no match for the power of markets. The following is the last 5 weeks of COT data, adjusted for commercials and non commercial spreading.
While the total net short position increased in a rather strange fashion, there was both a decrease in the gross short and gross long position, the latter obviously being greater. Moving down the chart, the most encouraging sign is the slight reduction in the 4 largest banks, most likely because of the unwinding JP Morgan’s contracts. Another encouraging stat is the adjusted net open interest which fell by approx 6,400 contracts. Therefore we can’t take the increased concentration levels of the 4 largest at face value as we have to keep in mind open interest was also reduced. The same goes for the 8 largest, which can be partly attributed to the decrease in the raptors (other commercial banks) position as well as a reduction in the commercial spread position. The 8 largest as a whole were basically flat regarding changes in their net short position. Again, the increased concentration levels, fully adjusted, have to be taken with a grain of salt as all the changes in the concentration levels were a function of the substantial change in open interest, which is a structural change that will likely remain throughout the unwinding process.
Takeaways: Although at first glance, this week’s COT report seems bearish, I contend a large part of it was due to the vast decreased in real open interest. Given the price action after last Tuesday, I expect to see a very bullish COT report next Friday. Concluding this week’s analyses, I just wish to say the end of this fraudulent manipulation is coming to an end. (I say fraudulent only because it was the CFTC who granted these banks hedging exemptions, so like most things gone wrong in society, a government regulatory agency is at fault).
