In Ted Butler's Archive


In silver, the concentrated short position of the 4 and 8 largest traders is much larger than the comparable short position in any other commodity. Undoubtedly, you’ve heard me mention this before, but with the aim of putting it into proper perspective, let me try to describe what this means. Silver has a narrowly-held, but extremely large short position that doesn’t exist in any other asset to the extent it does in silver. This concentrated short position means that the 8 big COMEX shorts have to work overtime to make sure prices don’t rise. The big shorts’ motivation is simply a matter of financial survival because when silver prices rise (as they will), the big shorts could suffer massive and potentially ruinous losses. Therefore, the big shorts have to try to keep prices from rising and my weekly COT analysis is largely a reflection of how well or poorly they are faring.

The concentrated short position in COMEX silver is purely speculative, as opposed to being a legitimate hedge. A legitimate short hedger in silver would be a silver miner looking to lock in prices that ensure a profit. Commodity futures trading exists to allow producers and consumers to hedge and reduce price risk. However, there is scant evidence of silver miner hedging on the COMEX. Publicly-traded mining companies are required to fully disclose all such hedges in quarterly earnings reports. None, to my knowledge, report or engage in such hedging. Silver mining companies are highly reluctant to hedge on the COMEX because their shareholders want upside exposure to higher silver prices. I’ve yet to uncover an investor in silver mining companies that doesn’t expect higher silver prices and who wouldn’t avoid, like the plague, any miner hedging the price of silver.

Since the concentrated short position in COMEX silver has dominated and suppressed prices for more than 35 years, it is only natural to question if it can be extended much longer. Recent important changes suggest the big shorts’ reign is on its last legs. One change is that the big shorts’ financial performance has been abysmal. Starting in the summer of 2019, the 8 big shorts have 5/been squarely behind the eight ball. They had to resort to a price smash going into the end of the third quarter (Sept. 30) to trim losses by $3 billion, but they still ended nearly $12 billion in the hole. It’s important to recognize that these 8 big shorts had previously never taken a loss when shorting COMEX gold or silver.

Another important change since mid-March of this year when silver bottomed at just under $12 and gold at $1460, is that JPMorgan has largely abandoned the short side. This leaves the 8 big shorts high and dry and makes for an epic double-cross. Prior to this, JPMorgan had been the largest COMEX short seller since the time it took over Bear Stearns’ role in early 2008. Having acquired 700 million ounces of physical silver and 25 million ounces of physical gold (at a minimum) and fresh into a deferred criminal prosecution agreement with the Justice Department, JPMorgan would seem to have every incentive to avoid its past leading role in the manipulation of silver and not short aggressively in the future. JPMorgan is ahead by more than $20 billion on its physical gold and silver holdings. They wouldn’t want to risk losing that.

In addition, there have been some genuinely remarkable changes in physical silver, including record flows of metal into ETFs and the COMEX warehouses. Then there is the fact that so many writers and analysts have come to project astonishingly high price levels for silver. This near-universal bullish opinion for silver reflects that silver is way too cheap. The reason everyone is so bullish on silver is an intuitive recognition that it is a bargain given the facts around it. Certainly, every mining company producing silver and every investor in silver desires higher prices. I believe the forces are converging to end the illegitimate concentrated short position in COMEX silver futures and send the price much higher. I’m sure that the big shorts would like to get out of their dangerous short positions before they are overrun. Their losses could easily mount to $30 billion. Their efforts to close out their short positions through purchases will only cause prices to rise further.

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