Silver Positioning Makes Silver An Attractive Contrarian Buy

March 18, 2018

Summary

  • Gold speculators continued to cut long positions and add to short positions.

  • Based on current speculative data, gold is now holding at average historical positional levels.

  • Silver speculators continue to cut silver positions to record-low levels with a net short position of around 16,000 contracts.

Based on speculative levels, silver looks like an extremely good speculative buy.

The latest Commitment of Traders (COT) report showed a weekly decline as speculative longs continued to cut positions (4 out of the last 6 weeks), while shorts moderately increased their own positions. At 13% short we are at the highest gold short position since December of 2017. But, again, the real bearish speculative action was in silver as speculators significantly increased their short position to the highest net short on record. This beats the previous record that we saw two weeks ago. Since we are contrarians, this has us very interested in silver and the potential opportunity with a reversal.

We will get more into some of these details but before that let us give investors a quick overview into the COT report for those who are not familiar with it.

About the COT Report

The COT report is issued by the CFTC every Friday, to provide market participants a breakdown of each Tuesday's open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. In plain English, this is a report that shows what positions major traders are taking in a number of financial and commodity markets.

Though there is never one report or tool that can give you certainty about where prices are headed in the future, the COT report does allow the small investors a way to see what larger traders are doing and to possibly position their positions accordingly. For example, if there is a large managed money short interest in gold, that is often an indicator that a rally may be coming because the market is overly pessimistic and saturated with shorts - so you may want to take a long position.

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The symbol for silver ‘AG’ comes from the Latin word ‘agentum’ meaning silver.

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