Ted Butler Commentary
June 12, 2014 |
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| RUNNING SHORT
The price of silver is down 40% from a year and a half ago and down 60% from the highs of three years ago, to the point of falling below its primary cost of production. However, the concentrated short position has rarely been higher. That’s the main price factor behind $19 silver. It’s hard to see how it can be resolved. The price would be much higher if the concentrated position did not exist. The concentrated short position proves that silver is manipulated in price. The opportunity lies in how the big silver short position will be resolved.
Everything about the concentrated short position in COMEX silver looks illegitimate. It can’t be attributed to hedging from miners or owners of silver. The suggestions that the big 8 COMEX silver shorts (led by JPMorgan) are hedging physical silver or other derivatives is absurd. The 320 million ounces concentrated silver short position is 36% of all the visible silver bullion in inventories and 40% of total annual mine production. Imagine the outrage if the stock market was down 40% and eight traders had a short position equal to 36% of the total stocks in existence.
Who would want to be heavily and manipulatively short the most undervalued asset in the world? I believe the 8 largest shorts are captive to their silver short position. There is no easy way out. We are locked and loaded for upside action. The strongest factor pressuring the 8 big shorts to cover is the coming physical silver shortage (we had one in early 2011). Let a physical silver shortage emerge and these 8 shorts will rue the day they ever heard the word “silver.” If a silver shortage hits, it will be doomsday for the shorts.
The recent silver price action has been dispiriting, but its cause is not any oversupply of real metal. It comes from additional short selling. We are due for a major rally because the technical hedge funds (managed solely by computer programs) also hold a record short position. That’s the sole reason we have been going down recently. They have been adding to it, hand over fist. They are short almost 200 million ounces. This will be the rocket fuel for a price surge. We are at the point now where it’s dimes to the downside and dollars to the upside. Get ready for some long overdue price action.
Another reason for the extreme bullish readings in COMEX silver is the raptor net long position. The raptors are the small commercials such as trading firms, banks and brokerages. Silver can hardly get more bullishly configured because of them.
In the past, when the raptors have built up big net long positions in silver, they have almost always been right. When the raptors amass a large position that continues to move against them, they continue to accumulate additional positions. That has been the case since March 4, as the raptors have added more than 30,000 new long silver contracts. That’s the equivalent of 150 million ounces of silver. The technical funds will keep selling on lower silver prices and the raptors will continue buying until the technical funds run out of selling capacity (which I believe is at hand). When silver prices turn up, the technical fund shorts will attempt to buy back their short positions in unison and the raptors will sell to them at certain price points. That will determine the extent of the coming silver rally.
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