"The following essay was written by silver analyst Theodore Butler. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)
The most recent Commitment of Traders Report (COT) confirmed the continued powerfully bullish market structure in COMEX silver. For three weeks running, the dealers have maintained their lowest net short position in years, as the tech funds have abandoned the long side and have rushed to the short side in silver. As such, the downside remains limited, and the upside wide open.
While such a constructive silver COT configuration is all one should need to be aggressively long in silver, at any time, the biggest new development has been in the dramatic improvement in the COT structures of related markets, like gold, copper and the dollar. In fact, in addition to the strongly bullish structure in silver, the COTs of these other markets are also in their most bullish configurations in years. And, as bullish as the COTs are in gold, I still maintain that the gold structure is much better than reported, when adjusted for the large and uncommon non-tech fund long position in the non-commercial category.
Unless one believes that the tech funds have somehow come to realize that they have been the patsies and have now tricked the dealers into getting more long and less short than the dealers have been in years, it would appear that the tech funds will once again have their heads handed to them, when we rally in silver, gold and copper, and sell-off in the dollar. The only real question is how much pain the dealers inflict on the tech funds when these funds rush to cover their short positions.
It should be remembered, of course, that the COTs are not a timing device, but more of a directional indicator. As such, we must allow sufficient time for them to work. Just like in tossing horseshoes or hand grenades, close enough in the COTs counts more than pinpoint accuracy. Right now we are structured favorably enough in all the COTs, so as to be "all in" in silver. We may get more favorably configured amid lower prices, but the bigger risk is in missing the coming upside move.
Here’s a quick update on the May COMEX silver delivery situation. The day after last week’s article, the bulk of the then remaining 2000-contract open interest were delivered, as expected. The one real lesson that I think should be learned from the May delivery situation was the apparent unwillingness or difficulty experienced by the shorts in making actual delivery. As it is, there are still 200 contracts open, which represents one million ounces, with only two days until last trading day.
Once again, there is no legitimate economic reason for a short not to deliver as soon as they possibly can, save they don’t have the material. About the best thing one can say about the May COMEX silver delivery is that it is nowhere near as extreme as the May COMEX copper delivery, where there are over 2000 contracts open with the same two trading days remaining. Interestingly, this number of contracts in copper is more than all the total copper in COMEX warehouses, something I have never seen before. This is a very extreme and unusual circumstance. I don’t know what conclusion to reach other than copper is, obviously, very tight and that the management of the COMEX doesn’t seem quite on top of the situation in allowing such a development.
