“…it’s fairly possible that additional dips shall be shallow and that the ratio of threat to reward is now closely skewed towards reward.”…
by Craig Hemke through Sprott Cash Information
Current information from the CFTC means that COMEX silver positioning is essentially the most favorable since June of 2019. Whereas this doesn’t preclude extra draw back, it definitely means that any additional worth drops shall be shallow.
So, what we’re speaking about right here is the CFTC’s weekly Dedication of Merchants stories which can be surveyed on the COMEX shut every Tuesday after which reported 74 hours later, after the COMEX shut the next Friday. This information is subsequently not made well timed neither is it appropriate for buying and selling. Nonetheless, when you monitor the information for years as I’ve, you start to note discernible developments that may provide help to spot potential worth highs and lows.
To wit, when the “Speculators” (primarily hedge and buying and selling funds) get overly excited, bullish, and lengthy, a worth high normally follows as shopping for momentum for COMEX contracts is almost exhausted. At that very same level, the “Commercials” (primarily bullion banks) are closely internet brief and poised to revenue from the subsequent down transfer.
Conversely, when Speculators get overly pessimistic, bearish and brief, worth is usually very close to a backside and the chance: reward ratio will get skewed within the course of “upside reward”. Dedication of Merchants historical past suggests this latter state of affairs, the place Speculators are bearish and Banks are lengthy, is the place we at the moment are.
So, what’s the information presently suggesting? Under is the newest report, surveyed final Tuesday the 14th, and compiled by Goldseek into this helpful chart:
Let’s break it down and add some historical past:
- The Giant Speculator NET lengthy place was simply 14,005 contracts. That is the smallest place for the reason that survey of June 18, 2019
- If we divide the Giant Spec GROSS lengthy place by the GROSS brief place, we get a ratio of 1.32:1. In my expertise, a ratio better than 4:1 is bearish whereas something beneath 2:1 is bullish. Moreover, that is the bottom the ratio has been since June 11, 2019
- The Business NET brief place was simply 22,047 contracts. That is the smallest whole place since June 4, 2019
And what’s the significance of June 2019? After the inventory market washout and “Powell Pivot” of December 2018, The Fed lastly introduced a brand new plan of fed funds fee CUTS at their FOMC assembly of June 18-19, 2019, and, as soon as this occurred, COMEX silver costs rallied about 30%…from close to $15 to close $20…earlier than peaking on September 5, 2019.
Whereas it definitely doesn’t seem that there are any fed funds fee cuts deliberate for the close to future, it’s useful to know that the COMEX silver Dedication of Merchants positioning is already just like the place it was the final time The Fed switched course. And since we all know that COMEX silver rallied 30% in the same state of affairs in 2019, it leads me to suppose that after once more the chance: reward ratio for silver is closely skewed towards “reward” within the coming months.
Another factor. Buried deep inside the “disaggregated” Dedication of Merchants report, you’ll discover a extra detailed breakdown of positioning. On these stories, there’s all the time a class referred to as “Swap Sellers” and that’s additionally one thing it is best to monitor. Why?
- What’s a swap? It’s a spinoff contract.
- What’s a COMEX spinoff? A futures or choices contract.
- What entities “deal” futures and choices contracts? The bullion banks.
So, if you see beneath the positioning of the “Swap Sellers”, know that these are the abstract positions of the bullion financial institution buying and selling desks. This isn’t “business hedging” as that falls into a distinct class on the report. You possibly can see this for your self right here.
Above you possibly can see that, as of June 14, the “Swap-Dealing Banks” had been truly NET LONG 7,064 COMEX silver contracts. How uncommon is that? That’s their largest NET LONG place since…you guessed it…June 4, 2019.
So, what’s the level of this week’s submit? It’s not that COMEX silver costs can’t go even decrease from right here…they definitely can. Nonetheless, given the historic Dedication of Merchants and worth information, it’s fairly possible that additional dips shall be shallow and that the ratio of threat to reward is now closely skewed towards reward.
Commerce and stack accordingly.