Silver COT in Detail

Most of the readers are no doubt aware by now that every Friday afternoon the CFTC releases the data known as the Commitment of Traders report (hereafter referred to as COT). That data comprises the positioning of traders from the close of trading on Tuesday the previous week through the close of trading on Tuesday of the current week. The lag is to allow CFTC to gather the data which is provided by the various brokerage firms on reportable traders.

In looking over this week's data for silver, and this includes the Disaggregated report for both Futures and Options, I am once again struck with something that has me completely perplexed, namely the apparent lack of substanial buying noted in the report.

Let me explain, on Tuesday of last week, the active Silver contract closed at $34.42. Tuesday of this week, it closed at $35.65 after spiking as high as $36.74 on Monday of this week. Taken together, from its close to its best level, silver tacked on a whopping $2.32 before closing up $1.23 for the reporting period. Either way, whether taking into consideration the amount of buying required to take price to its peak near $37 or even to its closing print, that is a lot of buying that occured.

One would obviously expect this to show up in the COT report when examining the various categories of traders.

Let's start with the big Commercial Class, named as the Producers, End Users, Merchants, etc. The report showed them covering 1,739 existing short positions and adding 679 new long positions for a net 2,418 contracts. Summary - they were buyers on the week.

Then lets move to the Swap Dealers category - they sold 551 existing long contracts and added 1,423 new short positions or a net total of 1,974 shorts. Summary - they were sellers on the week.

You will note that these two categories of traders make up the entire short interest in the Silver futures contract. So for the most part they ended up offsetting each others positions with the exception of 444 longs not accounted for.

Then we move on to the Managed Money category - this is the category that generally drives markets up or down. Once again as has been the case now for two consecutive weeks, this category supposedly was a net seller over the reporting period to the tune of 214 new short positions. When we consider that over that same two week reporting period, silver has moved from $32.85 to a high of $36.74, a distance of $3.89 we are somehow supposed to believe that Managed Money was selling during the entire period. That defies common sense given the extent of the move higher and the fact that the technical indicators were in a buy mode. Summary - net sellers on the week.

Moving on to the next category, Other Large Reportables. This includes the large locals, large private traders and other traders such as CTA's. This category added 660 new longs and ended up covering or buying back 1,164 existing short positions. That totals out to a net buy of 1,824 contracts. Summary - net buyers for the week.

The last category of traders is the Non-reportables. This is the small traders or general public category. This week they sold out 1,770 existing longs and added 284 new short positions which makes them net sellers of 2,054 contracts.

 

This is the first week since January 25, that the giant Commercial Class, the biggest shorts in the Silver market, showed a reduction in their extremely large net short position. We know from the Bank Participation report, that they increased their short positions early in the month of March but it should be noted that this week's data includes the March delivery process. It is perfectly normal during the delivery stage for the Commercial category to show a reduction in their net short position since some of that is due to deliveries and come downs in the active contract.

What has me perplexed however is that practically all of the change in the net short position of the Commercial class was offset by the Swap Dealer category, which is the other large short in silver.

This week's data showing net selling on the part of the Hedge fund community then means that it was left to the large locals and private traders to take the price higher with no assistance from the biggest longs in the silver market. Once again, I find this at odds with the extent of the overall price movement; a $2.32 move higher takes a lot of firepower to generate. The more I look at the less sense it makes, especially coming on the heels of the previous week's numbers. I had hoped we might get some clarity that would help explain what we were witnessing when comparing price movement to the shift in traders' commitments.  Maybe next week?