Once Again Structural Changes in the COT continued in the latest report; week ended December 14th 2010, most notably in the Adjusted Net Open Interest (3,318 contracts decrease). This is one of the more important line items to keep an eye on as it has been showing the total size of the Commercial position in silver declining. Unwinding of the massive short position by the commercials continues to contract by both the 4 largest and 8 largest commercial banks. Though Bullish, The falling open interest isn’t nearly as substantial as the COT reports, as the adjustments for spreading needs to be stressed to properly put this into perspective. At first glance a change of 7,530 is presented, but after removing the changes in total spreading, namely Non-Commercial, we end up with a decrease of less than half of what is initially reported.
While concentration levels by these two groups remain elevated, this isn’t necessarily a bad thing due to the aforementioned declining adjusted net open interest. The most current weeks Commitment Of Traders Report, however, showed a decrease of the Largest 4’s net short position of 1,889 contracts or nearly 9.45 million ounces. This rather larger weekly decrease is likely due to the unwinding of many JP Morgan contracts (which they recently announced they were going to be doing). While this decrease was rather bullish, it is even more so when adjusted net open interest is taken account seen through the declining concentration levels of the 4 largest (declined .16% w/w and 3.65% over the last two weeks). Finally we the total commercial position held short vs. world Silver bullion again decreasing to 28.70%.
Summing the most recent weeks reports up, The COT report is resuming very important structural changes, all of which are bullish for the metal going forward. Silver is looking for a big breakout to the upside in the short term should this trend remain intact.
