Silver - Significant increase in commercial shorts, June 10th 2005

Silver's London fix was $7.24 on Friday, down 28.5 cents from Tuesdays $7.525. On Tuesday the commercial shorts stood at 102016 contracts, up 23756 contracts in just two weeks.

Even though the increase in commercial shorts and non-commercial longs has been significant, this does not mean that silver could not rally for a rather long period. Just look at the two 'big' silver rallies the past two years (orange area). After commercial shorts reached past Tuesday's levels silver still rallied for several weeks. 

In addition, it can be safely assumed that the rather sharp sell off since Tuesdays COT numbers has led to a more favorable COT structure and thus silver should have a good chance of continuing Friday afternoons rebound this coming week, especially if 'helped' by gold and the USD.



While the COT structure of silver deteriorated during the past two weeks, gold has held up nicely and the COT structure in gold still looks very bullish, if you do not believe that we are witnessing a trend reversal in gold. Like we wrote two weeks ago "From a COT perspective there doesn't seem to be much room to the downside for gold at the moment, if you take the past two years as a guideline. This is the kind of COT structure that has preceded quite strong moves to the upside." We still stick to this.

Even though the currency market is not affected as much by Comex/Nymex futures and options positions as silver (and gold), it is worth to note that commercials are going long like crazy the Swiss franc, which has seen one of the most severe beatings against the USD the past weeks. I haven't heard about any big problems with the Swiss constitution lately.

The commercials have been net short the franc virtually every time we have seen a mid to short term top and net long virtually every time at the lows. I have a hard time believing that this would be a real reversal of the dollar trend and that the commercial would have to cover their longs with falling prices. 

When the dollar eventually gets it's inevitable reversal (at least short term) this will be bullish for gold (even though we have seen some disconnections between the dollar and gold lately) and likewise for silver. 

I would never do my investing or trading decisions by looking blindly at the COT numbers. This said, I believe the current COT structure is rather bullish for Gold and Silver and rather bearish for the USD and I don't fear PM weakness at least from a COT perspective.

I would like to end on a note that my investing and trading approach is not quite as 'COT centric' as my recent articles might indicate. I have however received a lot of positive feedback for posting the COT data with price charts, and thus put these graphs in the public domain for others to consider. There is a lot of excellent technical and fundamental analysis by several prominent commentators on the markets I follow, and I don't feel a need to be redundant. I hope the COT charts gives you further food for thought. 

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