Discussing Comex Silver

74
Thu, Apr 5, 2018 - 10:42am

With the open interest in Comex silver blowing out to a new alltime high yesterday, we thought it best to discuss again what this indicates and what it doesn't.

As of yesterday's Comex close, the total open interest in Comex silver is at an alltime high of 241,135 contracts. This blows away the previous alltime high seen on April 20 of last year at 234,787 contracts. Let's first hit the basics...

At 241,135 contracts, total Comex open interest represents 1,205,675,000 ounces of digital silver. The entire world will produce about 825,000,000 ounces of silver this year so this open interest is now at a record 146% of global mine supply. To understand how ridiculously over-leveraged this derivative market has become, compare Comex silver to Comex gold and Comex copper:

  • Comex gold OI 500,627 contracts = 50MM digital ounces vs mine supply of 90MM ounces = 55% of global mine supply
  • Comex copper OI 289,814 contracts = 7B pounds vs 40B pounds of mine supply = 18% of total mine supply

OK, now that you have some sense of the scale of this madness, let's move on. How about some history?

April 20, 2017 was a Thursday. This means that two days earlier, with Comex silver OI at 227,984 and price at $18.40, there was a CoT survey. And what did this CoT show last year?

Large Spec Long = 128,378 Large Spec Short = 24,491 NET LONG 103,887 contracts

Commercial Long = 46,878 Commercial Short = 163710 (an alltime high) NET SHORT 116,832 contracts (also an alltime high)

So, with Large Specs NET LONG nearly 104,000 contracts and the Banks et al NET SHORT at an alltime high, what do you suppose happened next???

Of course you already know. The Specs began to dump longs into the May17 contract expiration and price fell for next 13 consecutive days. The total decline was $2.03! Total open interest fell back to a low of 188,527 on Day 10 of this selloff and The Banks had fleeced The Specs once again.

Now let's compare this to present day by making some reasonable projections for tomorrow's updated CoT.

Last week's survey taken March 27 showed:

Large Spec Long = 60,786 Large Spec Short = 74,443 NET SHORT 13,657 contracts

Commercial Long = 82,087 Commercial Short 89,439 NET SHORT 7,352 contracts

You can already see the radical difference one year and $2 in price has made. And if last April's CoT virtually assured that the next move would be a washout of the Spec longs, why wouldn't the current CoT virtually assure that the next move would be a washout and squeeze of the Spec shorts?

But let's not stop there. Last week's CoT was a snapshot from five market days ago. Here's how things have changed since:

March 28: Price down 29¢ and OI up 8,800

March 29: Price up 2¢ and OI up 900

April 2: Price up 40¢ and OI down 900

April 3: Price down 28¢ and OI up 4,400

April 4: Price down 14¢ and OI up 8,400

Since total open interest rose on every sharp down day for price, it's very safe to conclude that the Large Specs have continued to pile into the short side of Comex silver at every opportunity. So, while last week's disaggregated CoT looked like this...

An updated CoT, based upon projected changes through yesterday (Wednesday), would look like this:

Now consider these points:

  • The situation compared to last April is the same...but it's the opposite. Just like last April, the Specs will eventually have to unwind positions ahead of the May contract going off the board. But this year, instead of dumping longs, they'll have to cover shorts!
  • If, at present, The Large Specs are NET SHORT something like 30,000 contracts, this likely places the Commercials into a NET LONG position for the first time in the recorded history of mankind.
  • So, for once, The Commercials would actually benefit from a price rally.
  • However, where sharp selloffs ALWAYS benefit the Bank desire to cap price, maybe The Banks won't allow a sharp rally for fear of igniting upside momentum. This must be considered, too.
  • But again, if outsized Spec long positions always lead to selloffs, why wouldn't this incredibly outsized Spec short position lead to a squeeze and rally?

So, we'll see what happens next. Maybe we'll need to move closer to the May18 expirations before the squeeze begins. If anything, we've been warning you for weeks that NOTHING IS GOING TO HAPPEN until The Specs begin to feel pressured by a price that rises through the 50-day, the 200-day and the key resistance level of $17. Until then, we're stuck rangebound and moving sideways.

But don't let the current malaise and price range distract you from this truly remarkable situation. Total Comex open interest is at an alltime high. The Large Specs are are building an unprecedented NET SHORT position. And The Commercials (the Banks) are now NET LONG for the first time ever.

A price rally is coming. This rally could be spectacular. The only question is whether or not The Banks will allow it to be.

IF The Banks play the usual game of swapping positions with The Specs, the mass of Spec shorts will be covered but then transferred back to The Banks. Price will rise but perhaps not more than the $2 it fell last year.

IF, however, The Banks stand down and simply hold their positions, this would force The Specs to buy and cover only amongst themselves. This limited amount of liquidity would have the potential to spike price in a rally the size and scope of which we haven't seen since the spring of 2011.

So, sit back and watch. These events will soon unfold and the record level of Large Spec shorts will begin to get squeezed. Once this begins, we'll all get to see the results in real time.

TF

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  74 Comments

· Apr 5, 2018 - 11:12pm

In this post, we discuss some of the daily indicators

But if you really want to set off a short squeeze Spec panic, get price above these weekly trends...the 200-week MA and the downtrend arrow of consistently lower highs dating back to September of 2016.

billhilly · Apr 5, 2018 - 11:51pm

from ZH...

Friday, April 6

  • 8:30 AM Nonfarm payroll employment, March (GS +200k, consensus +189k, last +313k); Private payroll employment, March (GS +200k, consensus +195k, last +287k); Average hourly earnings (mom), March (GS +0.3%, consensus +0.3%, last +0.15%); Average hourly earnings (yoy), March (GS +2.7%, consensus +2.7%, last +2.6%); Unemployment rate, March (GS 4.0%, consensus 4.0%, last 4.1%): We estimate nonfarm payrolls increased 200k in March following a 313k gain in February. Our forecast reflects strong labor market fundamentals partially offset by a sizeable drag from weather, as snowfall was above-average in the first half of March. If realized, our forecast would represent a significant acceleration in underlying job growth from the 180k trend in the second half of 2017.
  • We estimate the unemployment rate declined by one tenth to 4.0% (from 4.14% previously), as continuing claims resumed their downtrend between the survey reference periods. Additionally, surges in labor force participation as large as that seen last month (+0.3pp) are typically associated with a subsequent decline in the jobless rate. Finally, we expect average hourly earnings to increase 0.3% month over month and 2.7% year over year, reflecting somewhat favorable calendar effects.
  • 01:30 PM Fed Chairman Powell (FOMC voter) speaks: Federal Reserve Chairman Powell will give a speech on the economic outlook at an event hosted by the Economic Club of Chicago. Questions from a moderator are expected.
  • 03:00 PM Consumer credit, February (consensus +$15.0bn, last +$13.9bn)
modus.tollens TF · Apr 6, 2018 - 2:08am

OI AU/AG

Here are open interest ratios under 2 between 2000 and 2018. I decided to average them by quarter because there would have been too many weeks between 2000 and 2003. After Q3 of 2002 there have only been 6 weeks when OI Ratio between gold and silver was less then 2. I hope you find it useful for all of our sakes. :-)


2000 Q3 131,754 $276 80,129 $4.90 1.64

2000 Q4 127,000 $269 78,361 $4.70 1.62

2001 Q1 133,831 $264 72,474 $4.50 1.85

2001 Q2 119,002 $268 69,013 $4.40 1.72

2001 Q3 117,397 $275 72,773 $4.30 1.61

2001 Q4 117,214 $278 68,738 $4.30 1.71

2002 Q3 159,707 $315 86,124 $4.60 1.85


4/1/2003 171,558 $335 89,047 $4.41 1.93

4/8/2003 173,293 $322 90,692 $4.48 1.91

8/5/2003 200,599 $349 110,005 $4.98 1.82

8/12/2003 209,187 $360 107,445 $4.91 1.95

3/9/2004 230,009 $401 116,299 $7.02 1.98

4/4/2017 427,808 $1,258 219,160 $18.32 1.95

hoeyke · Apr 6, 2018 - 5:23am

well done

Great article Turd!!!

MrOnline · Apr 6, 2018 - 5:25am

GSR

I watched that Tom Cloud video some of you guys posted. He said that GSR should be at 50:1. He came to that number by looking at ratio of the last 50-60 years. He said zero about above ground ratio, in the earth ratio, out of the earth ratio, mine cost ratio, ratio of how many oz people buy and ratio of $ inflow both physical and digital. There sure are many other aspects I haven't mentioned here when trying to forecast future GSR. I was shocked by how Tom Cloud dealt with such a complex subject. And remember, he is PM investor. 50:1 ratio sounds ridiculous to me. 

I tend to agree with Keith Neumeyer that is should be 9:1 or 10:1. The only thing that makes me question that is what SRSrocco wrote about cost of production ratio. He said that is takes more than 50:1 oil ratio to dig out gold to silver. That is the only thing I don't know how to put into equation. How do we account for that it is 9:1 out of the ground, while at the same time cost of production is close to 70:1? What than should be right way to view GSR? Who can crack that nut?

Thomas More · Apr 6, 2018 - 5:25am

Gaming the BLSBS

Whichever way the numbers fall, the way these guys have set up the markets, PM will get hit for at least a short time, and stocks at least a final boost. That way bank traders will be able to exit their positions prior to the wkend. 

It seems to me that the meme of "no more interest rate hikes and a weak dollar" will come roaring back into the garbage that we are fed by MSM. Just look at the difference yesterday between SP and CAC40 stocks on this latest bounce. However strong numbers will also be fed to us as proof that many more rate hikes are coming - in that case remind yourself of how this is not in America's advantage re: money allocation in stocks. We haven't posted much about the recent ministers of finance meeting and what they may have discussed? For me a displeasure was expressed with the bugger your neighbour policy of the US vis-à-vis the weak dollar. 

Otherwise I am betting (gentleman's bet) on Rory to wear this year's green jacket.

Thomas More · Apr 6, 2018 - 6:18am

Here is the SP divided by the

Here is the SP divided by the Dax. You can see that the Dax is out-performing the SP since the last employment report, remember, that blow-out report:

Released On 3/9/2018 8:30:00 AM For Feb, 2018

Prior Prior Revised Consensus Consensus Range Actual

Nonfarm Payrolls - M/M change200,000 239,000 205,000 152,000 to 230,000 313,000 

Unemployment Rate - Level 4.1 % 4.0 % 4.0 % to 4.1 % 4.1 %

Private Payrolls - M/M change 196,000 238,000 195,000 150,000 to 216,000 287,000 

Manufacturing Payrolls - M/M change15,000 25,000 17,000 8,000 to 22,000 31,000 

Participation Rate - level62.7 % 62.7 % 62.6 % to 62.8 % 63.0 %

Average Hourly Earnings - M/M change0.3 % 0.2 % 0.1 % to 0.3 % 0.1 %

Average Hourly Earnings - Y/Y change2.9 %2.8% 2.9 %2.8 % to 3.0 % 2.6 %

Av Workweek - All Employees34.3 hrs34.4 hrs 34.4 hrs 34.3 hrs to 34.5 hrs 34.5 hrs

A reminder of what Turd has been telling us, That a flatter yield curve is bad, as is higher bond rates. They are stuck - so no matter what they feed us it will be reflected in the bond prices. 

The arrow indicates March 9th the last BLSBS report and its effect on the relative performance of SP versus Dax.

Docdhj · Apr 6, 2018 - 8:39am

Jobs Goat Rodeo

Well Maria Bartiromo is in the middle of a goat rodeo in trying to explain why the actual number of "jobs created" was 103,000 when 195,000 was predicted and 50,000 jobs were lost in the previous months on revisions. Add to that, of the 103,ooo "jobs added" 65,000 were fictitious from the birth/ death model.

Maria.... " It was the weather..... the weather was bad... the weather was really bad."

fluxplus · Apr 6, 2018 - 8:50am

Jobs

Does it really matter? They will pound PM and make dollar great again regardless.

murphy · Apr 6, 2018 - 8:52am
Katie Rose · Apr 6, 2018 - 9:07am

Craig,

I just want you to know that I really, really, really appreciate you and the work you do on our behalf !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Katie Rose

Mickey · Apr 6, 2018 - 9:07am

different day, same shit

we should understand by now that its not just metals that's manipulated: almost everything is manipulated.

remember, GM decided to report March sales from March 1 to April 2, then say the next report will be early July, avoiding dealing with a 28 day April. I wonder if the quarterly report will now be called the first qtr plus 2?

Katie Rose · Apr 6, 2018 - 9:24am

thank you Katie

Sorry that I didn't have any success on that errand you requested a few weeks ago.

Notice: If you do not see your new comment immediately, do not be alarmed. We are currently refreshing new comments approximately every 2 minutes to better manage performance while working on other issues. Thank you for your patience.

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