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Is it really that bad that commercial trader are short gold and silver?

May 10, 2016

We have been talking about the short position of the commercials in gold and silver for most of this year. The argument is that the commercial traders are the “smart money” and it is not advised to bet against them, especially when their positions reach extremes. In 2016 we have seen the net short position of the commercials continue to build even as the price has gone up. The post below outlines the correlation between the price of gold and silver and the position of the commercials. For gold it is not the correlation I was expecting…

One final note is is seems as though the commercials start to reverse their position 1 to 2 years before the gold price moves in the direction they were betting on – referencing the top chart below, not the YoY% chart.

Click here to visit the original posting page for this research.

The latest (5/6) commitment of traders report showed some extreme net commercial positions for both gold and silver. Commercial traders are net short nearly 300k contracts of gold. This is the largest net short position since October 2010. Even as gold is off about 2% today, the net short position in gold should be viewed bullishly for gold. Since the commitment of traders report started tracking gold position, the net commercial potion in gold has had a -69% correlation to the price of gold and a -64% correlation to the one-year change in gold price.

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The current net commercial position in silver is even more extreme, however, it is less clear what that means for silver price. Commercial traders are net short about 90k contracts in silver. Other than on 4/29/2016, commercial traders haven’t been this net short of silver since December 2004. However, unlike the commitment of traders data for gold, this series hasn’t had a strong relationship to silver prices. It has had just a 13% correlation to silver prices and a -46% correlation to the one-year change in silver prices.

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Discussion
7 Comments
    May 10, 2016 10:21 PM

    Bank of Canada insolvent.
    http://sgtreport.com/page/7/

      May 10, 2016 10:19 PM

      Hello Andrew. A much more important story below that …..VAXXED.
      http://sgtreport.com/2016/05/why-is-the-cdc-petrified-of-the-film-vaxxed-richard-gale-gary-null/
      Everybody should read this & click on the links below.
      The “BASTARDS” are harming our children & grandchildren…..
      For “THEIR” god…the $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

        May 10, 2016 10:24 PM

        BTW….If memory serves me right some years ago when there was a scare about the MMR vaccine , not sure if it was Blair or Cameron were asked if their children had the MMR..they replied by saying it was a private matter.

    May 10, 2016 10:47 PM

    Guys talking about the high level of commercial shorts in gold and silver are looking at the wrong end of the microscope. They have it 180 degrees out. It is not the commercials that drive price, it is the speculators.

    You are allowed to think for yourself. If what everyone else is saying is true, that the commercials drive price, how does a commercial force someone into the opposite position. Do they go out on the street and force someone to trade?

    The speculators drive price. We know that because as prices move higher, they keep increasing their long positions. At the top before a correction, they will be record long as they are today. And rather than the commercials being “smart money” it’s the small speculators who are the weak hands. The small speculators panic at any drop in price and start unloading. The commercials always have to make a market so they don’t care if they are long or short. They will cover any new contract.

    The ‘noise” level from the clueless gets louder every day. Why don’t any of these guys making up new concepts learn something about markets before they run their mouths?

      May 10, 2016 10:13 PM

      Bob, you are correct and it’s simple to understand.

      The 99% have no interest in thinking for themselves, about anything. They prefer to absolve themselves of life’s responsibility. This indoctrination is commonplace globally and in all walks of life.

      “The ‘noise” level from the clueless gets louder every day. Why don’t any of these guys making up new concepts learn something about markets before they run their mouths?”

      Simple Bob, because its still profitable to spout blustery made-up nonsense that sounds flashy and neat. This type of asymmetric influence works, so it will remain in effect on Wallstreet and the PM Guru’s talking heads until such time as it is no-longer profitable or the gullible 99% who want to be told what and how to think grow a brain.

      Don’t hold your breath Bob.

    May 10, 2016 10:12 PM

    There is a lot of chatter on the internet about Ted Cruz’s father Rafael ‘s affiliation with Lee Harvey Oswald. Many people are thinking that Cruz quit after The Indiana primary because he was worried about his father’s exposure in the media. Remember Ted Cruz had vowed to stay in the process until the convention in Cleveland. This story must have influenced his decision. His father couldn’t keep from speaking out on his behalf and it was drawing heat to his candidacy, he had to leave or face further questioning which could have been very damaging for him and his family. IMHO! DT

      May 10, 2016 10:50 PM

      Never heard much on the subject of Cruz’s father and his Oswald affiliation. However, it means nothing to me. Oswald was a patsy who took the fall but didn’t kill Kennedy. The real shooter was whisked out of Dallas on a C-130 and disappeared like his handlers told him to.
      Cruz would never have made a good president. Too godly for me and he’s stepped on too many toes in the republican party……he really never had a chance. Ought to buy a big carnival tent and become a preacher and tour the old confederacy where he can find some admirers. JMO