In Ted Butler's Archive


I sense that pressure is building in the pricing mechanism and structure of the silver market. My main indicator of pressure lies in the current positioning of the managed money traders (hedge funds) against the commercials (big banks) in COMEX silver futures contracts. There must be some type of resolution to the extreme market structure in silver.

Since 2014, there have been a dozen instances where as many as 50,000 to 100,000 net contracts of COMEX silver have been bought or sold in fairly short periods by the managed money traders. These are enormous quantities in real world equivalents; anywhere from 250 million to 500 million ounces of silver.

This larger managed money positioning is having less price influence in terms of the magnitude of the price move. Larger quantities are not translating into larger moves. I see this as pressure building and a pattern that must eventually be broken. At this point, 50% of annual world production being bought and sold within months is absurd. Such huge quantities resulting in price changes of only 2 or 3 dollars is even more absurd. This puts pressure on the big banks who are short so much silver on the COMEX. If the managed money traders don’t sell aggressively, the 8 big silver shorts can’t buy and reduce their short position without causing prices to explode. This type of pressure hasn’t previously existed to this extent.

Other pressures are building. A report from Reuters examines the sale of the ScotiaMocatta precious metals unit by Scotiabank. The reason for the sale was changed from the previously reported cover story of some type of gold smuggling scandal to the more reasonable version of poor financial returns and questions of legal liability from various gold and silver lawsuits alleging manipulation.

Of course, there was no mention of the potential liability that might accrue to Scotia, or anyone which bought the unit as a result of being heavily short COMEX silver (and gold). But there was no chance that would be acknowledged by the bank. After all, the point is to put as much lipstick on this pig as possible and not scare away potential buyers. Still, I get the impression that Scotia is not waiting for a sale to rid themselves of the liability of being a big short caught on the wrong side of a silver move higher.

JPMorgan has taken a disproportionately larger share of the concentered short position of the 4 and 8 largest shorts in COMEX silver. My sense is that JPMorgan increased its paper short position out of necessity, as opposed to choice. Should ScotiaMocatta or any of the other large shorts in silver decide to reduce their short position, unless the prime manipulator, JPM, takes up the slack, silver prices will rise. JPMorgan is certainly positioned for an upside explosion in the silver price by virtue of its massive physical long position, but obviously felt compelled to cap silver prices at this time. More pressure.

The new report on securities short positions indicated a big jump in the short positions of SLV, the big silver ETF. As of Nov 15, the short position in SLV increased by 4.5 million shares to 20.1 million shares (ounces). This is the highest short position in this security in quite some time. The short position in SLV is equal to 6%, a very large amount. To my mind, there should be no short position in this security, because that means that 6% of SLV shares have no metal backing, as required by the terms of the prospectus.  Short sales of SLV imply that physical metal may be unavailable or hard to obtain (at the right price) and this adds a new dimension in terms of pressure.

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