GOLD & SILVER COT REPORT: COMMERCIALS REDUCE SILVER SHORTS ANOTHER 7 MILLION OZ

MAY 28, 2013

Gold & Silver COT Report by Marshall Swing:

Commercial longs added 1,037 contracts to their total and covered 255 net total shorts to end the week with 49.60% of all open interest, a decrease of 1.09% in their share of total open interest since last week, and now stand as a group at 59,630,000 ounces net short, which is a decrease of almost 6.5 million net short ounces from the previous week.

Large speculator longs decreased by 157 contracts and picked up 1,822 net short contracts decreasing their net long position to 44,075,000 ounces, another huge decrease in their net long position of almost 9.9 million ounces from the prior week.

Small speculators added 1,489 long contracts to their total and added 802 short positions for a net long position of 15,555,000 ounces an increase of almost 3.5 million ounces net long from the prior week.

Silver opened the COT week at $23.35 and closed at about $22.40 but what happened in between on Sunday afternoon was absolutely amazing as silver crashed from $22.26 to $20.25 in a matter of minutes. At the same time, gold crashed from $1361 to $1336. The percentage crash in silver was just under 10% and the crash in gold was almost 2% That equals quite a disparity in the reaction of the two metals.

First and most important is the overall trend this week’s numbers reveals. Commercials bought new longs at a rate of 4 to 1 over the number of shorts they covered. Large speculators continued to make overall short bets outpacing their long purchases by a margin of 12 to 1 and small speculators long purchases outpaced their short buying by almost 2 to 1. This tells us that the overall trend in speculators going short is still intact. In the disaggregated commercials we see the swap dealers covered 856 shorts, not shabby but not huge. In gold, we see similar thinking in the large specs taking massive new short positions while the small specs predominantly covered shorts and the overall commercials is a dead heat but the disaggregated commercials reveals a massive short covering by the swap dealers.

Much has been said this past week about “lack of bids” but it is truly not a lack of bids that caused the collapse but the price at which the offered bids for sales were priced. When you get down to it, it is always psychology and strategy traders are still betting prices will go lower. Gold swap dealers covered 7,864 contracts in what I believe was a huge player deciding to take profits and once that happened new longs in the game simply had their sell stops blown wide open and a typical short covering crash ensued.

By the numbers, it is clear that gold led the way, drug silver into the abyss and it was silver, not gold, that did not have new long buying interest until all of a $2 drop in price had occurred. Gold long buyers jumped in quickly and the yellow metal was spared indignation but the white metal’s weakness was thoroughly embarrassed.

Overall, we appear to be headed lower in price because there is still enthusiastic short positions being taken by managed money speculative traders in both metals. That will not last much longer then we are probably in for a protracted period of stagnation as the commercials will only become happier with their new and increasing long positions and while the speculators will desire longs at the bottom there will be no one around to take the short side for quite some time to come once the near bottom is reached.