A Closer Look At The Silver Market

Posted at 4:04 PM (CST) by & filed under Trader Dan Norcini.

Dear Friends,

I have had a fair number of emails asking me to take a look at the internals of the silver market vis-à-vis the Commitment of Traders report after the explosive move that it underwent this past week. The big move began on Tuesday which is the cutoff day for this week’s COT report so we are able to see the state of the market through that date. However, this report will not catch what transpired on Wednesday through today. If you recall, silver tacked on quite a bit more upside since its move on Tuesday.

The only thing I can note at this point is that a bit of divergence occurred between the Swap Dealers and the Commercial Producer, User class. The general pattern in silver is that these two groups of traders tend to move in tandem, increasing their net short positions as the market rallies and decreasing it as the market moves lower. It is not an exact match but fairly reliable.

This week’s report does show a move by the Swap Dealers in the opposite direction of their fellow travelers. This class saw a significant amount of new buying in addition to short covering. One or even two weeks does not a trend make so it is too early to say anything definitive about it as of now but it should be noted that as of Tuesday they were net long.

Again, try not to read too much into things right now but let’s monitor developments again next week.

Concerning gold – nothing out of the ordinary as far as its COT report shows – managed money piled in on the long side while the Commercial Class and the Swap Dealers loaded up on the short side once again. Managed Money remains well shy of their all time peak of more than 238,000 net longs – they are currently at 202,000. There is lots of room for the funds to play should they choose to do so.

Click chart to enlarge in PDF format