"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

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Friday, March 4, 2011

SILVER Commitment of Traders Report

The only thing I can say about this report is that it makes absolutely no sense whatsoever to me and this is coming from someone who has been looking at these reports when they first came out many years ago.

Over the last two week reporting period dating back to 2/15/2011, silver has risen 340 points from Tuesday to Tuesday. This week alone, it increased 157 points from the close of trading last Tuesday to the close of trading this Tuesday. Both today's COT report and the previous report show the managed money category actually reducing net long side exposure to silver. That is odd enough in the first place.

If that were not enoug the reports show a continued build in net short exposure among the big Commerical, End User/Producer category. 



The Swap Dealers did a bit of short covering this past week reducing their net short exposure by 2,272 contracts (futures and Options combined) but the previous week they also increased their net short exposure.

Meanwhile, the "Other Reportables" category registered net selling in both of the last two reporting periods.

Only the small spec category, showed a consistent increase in net long side exposure.

When I look at this report and I see a market that has surged to the extent that Silver has, and I see Managed Money actually decreasing their net long exposure with the only category being consistent buyers being that of the small speculator, I am very skeptical as to the intregity of this data. Small specs do not buy in sufficient size to take markets for rocket rides of this extent. It takes much bigger firepower to do so.

Overall open interest in silver continues to fall off as the price works higher indicating the presence of a decent amount of short covering. It does not take a rocket scientist to understand that those with short positions in this market are bleeding profusely. What is strange and bewildering and the reason I suspect this data is because we are seeing what I believe is a disconnect between the daily open interest readings in silver which is provided by the exchange and what is occuring inside this market from the data being provided by the CFTC.

Additionally, the bank participation report actually shows a big increase in short side exposure in silver among the big banks for the March data.

What I want to know is where all the buying that is taking this market higher  is supposedly coming from? It sure as hell isn't coming from the Managed Money side of things based on the last two CFTC reports. So, who's buying this market????

16 comments:

  1. Must be the usual culprits, China.

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  2. Dan,

    You said managed money decreased their net long exposure, but according to your graph it looks like there was a large increase in managed money long side exposure. Am I looking at it wrong? How do you calculate the managed money number?

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  3. Flaunt;

    Yes, Managed Money has seen a large increase in net long side exposure but that ended two weeks ago. The last two reporting periods, which saw a $3.40 increase in the price of silver, actually saw the Managed Money category reducing their net longs. Look carefully at the chart and you can see that Managed Money has stopped rising and is actually tailing off slightly.

    Dan

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  4. Very interesting article, I think you have caught something significantly curious about these numbers. Somebody is playing hide the weasel here.

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  5. Thanks Dan, I see it now. Didn't realize that little squiggle at the end was this week's data. Very curious.

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  6. Art - that is precisely my thought as well. Something does not add up. The price action to the upside has been too great for what the COT report is showing.

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  7. Hi Dan. Sorry if this is one of those dumb questions.

    Any time we're looking at numbers coming from different areas we tend to pick or already know which number stands as the truth.

    For example if I'm driving my car I assume my speedometer is correct and would also assume that the fact so many cars are passing me is that they are speeding. Would take a long time before I questioned the speedo.

    So here we are, leaving the cars around us in the dust (the COT doesn't support the upside) but the speedometer says they should be staying right beside us because we're sure of our speed and the other cars generally move the same pace we do. Are we sure the speedo is calibrated? What is the standard?

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  8. Dan, I just find it fascinating that you're questioning the validity of the commodity trader's positions at the same time as someone else is questioning the validity of the price action in the futures market as a whole:

    http://pragcap.com/revisiting-the-mystery-buyer

    "Someone bigger than the rest of us wants this market higher and they’re doing it while most of us sleep…Perhaps I am making something out of nothing, but it just doesn’t add up if you ask me."

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  9. Dan - sorry another post to reveal how little I really know....

    IF very little silver is actually being delivered, then what does it matter what the price is and could it get disconnected from the rest of the business indicators? ("price" is where the speedometer needle points in my analogy above)

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  10. cswake - that is a very good description of what does take place in that pit. It does indeed happen and it is buying of that nature which always catches the attention of those of us who watch the screens very closely.

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  11. Happyinthewoods -

    All I can tell you is that something does not add up when comparing the exchange datat to the CFTC data and looking at the extent of the price move.

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  12. Might I suggest that you take this one step further and solicit ideas from your friends/acquaintances in the industry on what might be the possible causes?

    It'd be an interesting read to hear SME's input on whether this is indeed strange, and if so, is it due to (1) something you're overlooking, (2) some human error in the reports, and/or (3) fraud/deceit.

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  13. I'm over my head here, but is it possible that some entity (let's say China) enlisted a small army of small speculators to do its buying, so that it's a stealthy approach to amassing silver? But then I guess those small speculator numbers would show up on the the COMEX data wouldn't they, if the buying got so large? The other thing is that if the commercial and managed money are short, do they know something that we don't? Is this same circumstance happening in gold?

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  14. This comment has been removed by the author.

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  15. Using Occam's razor, I would say that it wasn't the futures that drove the price last week, but the buyers. All over the world, people are buying silver. A quote from a friend of mine at work is a good example, "I'm buying, I don't think the price is coming down."

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