Trying to be objective, there is no question that we’ve swung from a strongly bullish COT setup in November in both gold and silver, to a decidedly bearish structure currently, as a result of an approximate $160 rally in gold and $3 rally in silver. Silver’s rally looks particularly anemic and manipulative considering the price is still below the average primary cost of mine production and that 43,000 net contracts (215 million oz) have been bought by speculators over the past two months.
The real problem, of course, is not that speculators have driven the price of silver too high based upon current economic realities, but rather that the commercials have been far too aggressive in the short selling of COMEX futures contracts. In fact, we have a larger concentrated short position by the Big 8 today at $18 silver than we had at close to $50 in April 2011. [Emphasis mine. – Ed] Please try to comprehend just how preposterous and illegitimate is this circumstance. What legitimate set of circumstances could account for 8 traders holding the equivalent of nearly 310 million oz of silver short – nearly 40% of annual world mine production and 30% of all the silver bullion in existence – at prices below the primary cost of production and nearly 70% below prices four years ago?
More than anything else, the outrageous concentrated short position in COMEX silver in addition to being manipulative on its face, is a potential danger of systemic dimensions. Because the 8 concentrated COMEX shorts are largely systemically important domestic and foreign banks, including the most important of all (JPMorgan), should something force some of these eight traders to cover to upside (like a physical shortage), the damage won’t likely be confined to silver. – Silver analyst Ted Butler: 24 January 2015