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Friday, April 5, 2013

Hedge Funds Target Silver

The hedge fund community, after pressing the Copper market from the short side to the point that they are now net short in the red metal by nearly a THREE to ONE ratio, are now moving to go after silver from the short side. This is the first time since the history of Disaggregated Commitment of Traders report broke out the hedge fund category (2006) that this group of traders has been NET SHORT the silver market.



Keep in mind that today's report (Friday) does not cover the further drop in silver below the $27 mark that occurred Wednesday and Thursday of this past week. No doubt a large portion of that further plunge was due to additional hedge fund shorting. The report also will not pick up today's short squeeze which caught a few of these newcomers to the short side off guard. However, based on what I can see of the attitude of the hedge fund community towards commodities in general, it is going to take some strongly bullish fundamental factor to drive these guys out of their short positions.

Any sort of sustained and strong rally in stocks might do it but I suspect it is going to take a series of economic reports showing solid growth in the US and global economies to get silver going to the upside along with copper.

Today's strength in silver was a by-product of gold, which pulled the grey metal higher - nothing else....

10 comments:

  1. Hi Dan,

    Thanks for your insights and the charts! Can I just ask you though, about the silver shorts, aren't the hedge funds/large specs usually on the wrong side when the tide turns? They always seem to be the most exposed when the pm's reach a peak or trough lol! Do you think they will drive silver down further, or just keep it suppressed where it is? Without the dollar going on a major rally, wouldn't gold/silver hold roughly where they are? Seems like a medium price area. And also the commercials have gone heavily short the usd index and reduced pm shorts. So a confusing picture all round! Thx for any insights you may have.

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  2. in order to go short, one needs someone to go long. someone has to come out the short end. who would be insane to sell a short position to the hedge funds in such large quantities when almost everyone at Comex seems to know gold is going down way ahead of time.

    In order for this to work, there needs to be collusion between the bulk of the longs and the bulk of the short. these are not stupid longs and shorts. i do realize there are rational business hedging reasons for some of the long and shorts, i would have to assume govt funds are being used to make up for the losses.

    does this make sense

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  3. Makes sense as long as the dollar rate and interest rates make up for the cost of supressing the precious metals.

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  4. Hi, I know what you're saying but aren't the commercials reducing their shorts while the large specs increase theirs? Weird how it always works out that way isn't it? If you look at that chart, the red peaks in hedge shorts always coincides with a bottom in the market! But how low will the price go is the question. Right now they are targeting that strong support line going back to 2011! So it could go either way.

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  5. All I know at this point, is that if silver ever breaks out to the upside, and the shorts are forced to deliver, there will be hell for them to pay on the upside. I am sure they are doing their best to see that the breakout never happens.

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  6. So basically those huge short positions by the hedge funds, is that extremely BULLISH for silver?? Or is it something to be feared? The way Dan is talking, it's like you shouldn't touch silver with a barge-pole! But it has been proven time and again that the commercials are always right(and they must be on the opposite side of all those monster spec shorts!). So if the commercials have most of the longs now, surely they don't want the price to drop much further? They want to fleece the hedge funds for all they're worth! I suspect a dollar correction is imminent (is that a doji candlestick I see?) which will scare the specs out of their positions! And some convenient event will contribute also (like Mario Draghi saying 'whatever it takes' lol). But it is all so uncertain and like gambling at the casino. I'm sick of these games being played!

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    Replies
    1. there is collusion. the taxpayers subsidize any losses. hedge funds can front for the cartel also.

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  7. Dear Dan,
    Thanks for this great analysis!

    "after pressing the Copper market from the short side to the point that they are now net short in the red metal by nearly a THREE to ONE ratio"

    means apparently there is still a lot of room for them to short a lot more than now on silver, correct?

    "it is going to take some strongly bullish fundamental factor to drive these guys out of their short positions."

    Is Gold part of this sentence as well as Silver?

    "I suspect it is going to take a series of economic reports showing solid growth in the US and global economies to get silver going to the upside along with copper."

    I guess we won't have those figures, which means Silver may be capped.
    Now, Gold/Silver ratio is nearing 60, which is not an extreme yet, but is starting to be pretty high.
    Jim Sinclair is rather convinced that Gold prices are going higher.
    Do you agree and do you imagine possible that Silver would not follow Gold? Usually both metals are quite correlated in terms of market directions. Now I could imagine silver going up but underperforming gold if gold rallyes, to see a gold/silver ratio of 60 or even 65. But silver going down and being hammered by hedge funds while gold shows strenght and rallyes above 1600 $, is it a possible scenario to you?

    (of course the battle is not over for gold either, and we are not out of the woods because of friday, but let's suppose :))

    Today's strength in silver was a by-product of gold, which pulled the grey metal higher - nothing else...."

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  8. A simple look at the hedge fund index clearly shows that if the shorts are ever forced to deliver there will be some serious problems. How do you guys think they are making sure that doesn't happen?

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