Chart of the Day: Silver Shorts Surge

By Tiho, Short Side of Long

Today’s chart refocuses on the precious metal sector and in particular investor positioning towards Silver. Hedge funds and other speculators are now so negative on the metal, that the short positions have reached the highest level in the last 17 years (possibly even longer).

So what does this mean?

Judging by the historical price action over the last two decades, whenever speculators have held such enormous bearish positions, the price of Silver was either at or near a major low. Consider the following:

  • As short bets reached 44,790 in 1997, a huge short squeeze doubled the price in coming months
  • In 2000 and 2001 short bets reached over 44,000 triggering the start of a secular bull market
  • Finally, short bets reached 45,163 in 2005 as Silver broke out, rallying for almost three years

Silver COT

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Comments

  1. Wishfully thinking. History will not repeate this time. Absolute price matters more than relative positions. Silver will bottom at under $15

    • considering real full production cost of silver is between 20 and 29 dollars for most companies, today’s prices won’t stay down for very long. Just look at AG, PAAS, even SLW had to pay closer to 18 for last financing rounds.

  2. The sentiment indicators of precious metal I track have shown clusters of negative extreme. They are not perfect timing tools but have remarkably tracking records. All in all, sentiment is more deciding factor for gold price than any other market.

    But more importantly, those macro thesis behind precious metal bears are dead wrong.
    These thesis include
    1. New mining projects significantly increase metal supply.
    2. Interest rates have been bottomed and will spike up.
    3. Fed will end QE and even start to shrink balance sheet.
    It wont take long for everyone to realize they are facts of opposite.

  3. I remember the short squeeze on Volkswagen stock some years back. It was a truly amazing thing. That stock literally shot the moon when the shorts were squeezed. I’m not saying that a squeeze is in store for Ag, but squeezes can produce incredible opportunities to sell at a big profit.