At some point, the question becomes "why". With gold now up 17% year-to-date, silver is up just half that amount at 9.5%. And yet, the latest CoT report shows the highest silver Commercial net short position since 2008. Again, why? Why now?
That's truly the $64MM question. Why are The Silver Banks shorting so aggressively here? What's the difference in holding price below $16 versus $18 or $20? We'll get a look at the latest CoT data tomorrow but, for now, consider this:
There was a CoT survey taken on Tuesday, December 29, 2015. The closing price of silver that day was $13.93. The data showed that the Silver Commercial NET short position was just under 30,000 contracts as they were long 52,149 contracts and short 82,027.
The most recent CoT data released last Friday was surveyed back on Tuesday, February 16. That day, silver closed at $15.33. Versus December 29, price had risen by $1.40 or almost exactly 10%. And how had the Silver Commercial NET short position changed? They were now long 44,638 contracts and short 114,700 for a NET short position of 70,062 contracts. Again, this is the largest Silver Commercial NET short position since 2008.
Additionally, look at what has transpired in the six days since that last CoT survey. Total Comex silver open interest has risen by another 7,000 contracts, which very likely increases the Silver Commercial NET short position to over 75,000 contracts...all the while, price has actually fallen by 4¢.
Therefore, it isn't very difficult to predict what's likely to come next. A price raid. Do you recall this chart from last October?
Or how about this chart from last Friday?
It is abundantly clear that JPM and their fellow Big Shorts on the Comex are intent upon attempting to enforce lower prices. Otherwise, why would they be so adamant about selling into and capping every attempted rally? And this latest capping effort is the most egregious yet! It's perfectly fine for any entity, Commercial or Spec, to liquidate longs into an ongoing rally and, as noted above, the Silver Commercials have dumped nearly 7,500 contracts so far in 2016. However, what is definitely NOT fine is to allow the unlimited creation of paper silver in order to meet Speculator paper demand.
Again, note that the Silver Commercial gross short position back in late December was 82,027 contracts. That's a contractual obligation to deliver up to 410MM ounces of silver if called upon to do so. As of last Tuesday February 16, the Silver Commercial gross short position had grown to 114,700 contracts or 573MM ounces of silver. That's 60% of all the silver the world will mine in 2016!
So the questions must be asked again:
- Where would price be today if the Silver Commercials had not sold and shorted so many contracts into this 2016 rally?
- And if the buyer/seller equilibrium price was $18 instead of $15, what would be the difference?
- And why are the Commercials so intent upon capping silver? Over the same time period, gold has risen 17% but the Gold Commercial NET short position remains below levels seen at price peaks in 2014 and 2015.
Could this chart have anything to do with it?
So, we'll have to see what happens next. Logic dictates that a price raid is coming that will allow the Commercials to buy back and cover some of their short position while the Specs stream for the exits. But then what? The chart above shows an increasingly untenable position for JPM and their friends. Paper price seems to have been driven as artificially low as possible, thus the effort made to hold it back is increasing. And we haven't even mentioned the gold:silver ratio!
What's the best strategy for dealing with all of this? For me, it's the continued, gradual stacking of physical silver. Predicting the precise date of the failure of the silver manipulation scheme is a fool's errand. But, fail it will, just as all price manipulations before it have similarly failed. And, WHEN it fails, the events will be spectacular to behold.