In Ted Butler's Archive


In June, I began to notice an unusual development in the Commitment of Traders Report (COT) for silver.  Normally the short position of the 4 largest traders is two to three times larger than the long position. By the end of June, the concentrated long position had grown substantially larger than the short position by the widest margin in history. In a little more than a month the concentrated long position grew by 20,000 contracts or 100 million ounces. What was going on? I began to theorize that one single buyer was responsible. There was talk of a silver whale.

As suddenly as the large silver long position built up, it began shrinking. Simultaneously an equivalent amount was added in various silver exchange traded funds (ETFs). No one can buy 100 million ounces of silver outright without driving the price up dramatically as they acquired it. So this began to look like careful buying with a swap and the use of arbitrage to pick up 100 million ounces of physical silver without moving the price. The silver whale has proven to be an extremely clever buyer in arranging a transaction that had never been done before. All of this is exceedingly bullish for silver.

Now over the past four reporting weeks, the concentrated net long position of the 4 largest traders has increased by more than 5,300 contracts to 50,198 contracts, the highest level in two months. I’m not sure whether the big buyer is in the swap dealer or managed-money category, but since silver prices have generally moved lower, it’s easy to conclude that the buyer is not chasing prices higher. After all, the concentrated buying has occurred on no increase in the swap dealer gross long position and a decrease in the managed-money gross long position. The new whale is definitely swimming against the tide.

It’s too soon to speculate whether we may be seeing the beginning of a repeat of the highly unusual buying of 20,000+ contracts (100 million ounces) by the silver whale earlier this year (and subsequent conversion into physical silver), but I will continue to monitor this situation closely. If there is a rerun of what turned out to be a masterful purchase of 100 to 125 million ounces of physical silver, such a development could turn the price-setting process on its head. Yes, the earlier purchase didn’t set the price free, but it did coincide with the most pronounced silver rally in years. No telling what another big purchase would do to the price of silver.

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