The Silver Short Bubble
For the first time ever, total Comex silver open interest exceeded 200M contracts yesterday, settling at 200,273. This means that the coming Spec short squeeze is going to be violent and substantial. And why isn't anyone calling this a "bubble"?
The final open interest numbers for yesterday are in and they are truly remarkable. Gold, which declined by $7, saw its OI rise by over 11,000 contracts to 430,978. This is the highest Comex gold OI since late March. Since yesterday was a CoT survey day, there's no doubt in my mind that this week's report will show another substantial and bullish improvement in the gold CoT structure. Why? For the Wed-Tue "CoT week", gold was down $5 but total Comex OI ROSE by over 15,000 contracts with 2/3 of the rise coming Fri-Tue when price was declining by over $25. That's A LOT of fresh Spec shorting in gold and it will likely move the gold CoT to a bullish structure not seen since the early November lows last year.
That's all well and good but, obviously, the point of this post is silver so let's get right to it...
Yesterday, as price was being smashed nearly 2.5% or 40¢, total Comex silver OI rose by another 4,909 contracts to close at 200,273. That's the first time in the history of the Comex that total OI has exceeded 200,000 contracts.
- First of all, why now? Why is silver OI at record highs when price is at 5-year lows? And where are all the "bubble callers"? They were out in force four years ago with price in the $40s and total OI at 140,000. Why can't this current time be called a "short bubble"? It clearly is. I guess it's only a "bubble" when it fits the narrative you're trying to promote.
- Let's do some math. There are 5,000 ounces of paper silver behind every Comex contract. Multiply 5,000 X 200,000 and you get a total Comex obligation of over 1,000,000,000 ounces of silver. Hmmm. Last year's global mine supply was just under 900,000,000 ounces and the TOTAL Comex vault shows holdings of 181,000,000 ounces. How is it even legal to print 200,000 contracts when there's only enough silver in the vaults to cover less than 40,000?
- On the topic of mine supply, the WGC estimates total global gold mine supply at about 92,000,000 ounces. Total Comex gold OI at 430,978 represents 43,000,000 ounces or about 47% of total annual mine supply. In silver, as noted above the percentage is about 112% of total annual mine supply.
From a CoT standpoint, this is all extraordinarily bullish for paper silver. As mentioned earlier, the next report is due Friday and it will be based upon these numbers from last evening. For the CoT week, silver was down 21¢. Remarkably, over this same period, total silver OI spiked by 9,500 contracts from 191,774 to yesterday's 200,273. From a CoT perspective, we are back to a very bullish extreme in silver, too.
And what about the short squeeze that we've been expecting. OH, IT'S DEFINITELY COMING and the growth of Spec short open interest this week only adds more fuel for the fire. All we need is a spark. We almost had that spark last week after the Fedlines but silver failed to cross its 50-day moving average and fell back. The "doubling-down" on Spec short positions this week is simply accelerant for the fire once it begins. The chart below can't make it much more clear for everyone:
In other news today, the Greek situation is reaching a true crisis point (http://www.theautomaticearth.com/2015/06/the-only-good-deal-for-greece-is-no-deal/) and the US economy is slipping into recession (http://www.zerohedge.com/news/2015-06-24/excluding-obamacare-and-harsh-winter-q1-gdp-tumbled-14) Meh, whatever. The HFT algos don't give a damn about such arcane notions as fundamentals, all they see is a declining yen and they sell "gold" accordingly:
I need to get this posted so I'll just leave you with this...
In the 3.5 years since MFingGlobal when I officially quit trading, rarely have I been so tempted to wander full force into The Casino. This current situation is so extreme and the "short bubble" so HUGE that it is very difficult for me to remain on the sidelines. However, on the sidelines I shall remain. This personal restriction does not apply to you, however, my dear reader. Best of luck, be patient and prepare accordingly.