Silver market looks vulnerable

Otmane El Rhazi from The Bullion Desk.

The net long fund position (NLFP) in gold dropped 17,927 contracts over May 20-26; it had jumped 45,181 contracts in the previous week. The NLFP now stands at 104,694 contracts, down from 122,621, according to the latest CFTC statistics.

The was due to 10,239 contracts of long liquidation and 7,688 lots of fresh short selling. During this data period, the gold price fell to $1,186 from $1,213.

The NLFP, the shaded area on the charts, is generally in mid-range around the 100,000 level, while the January peak saw it as high as 188,000; the low in March was around 53,000.

The trends in the gross long and short positions (black and red lines) are upward for the longs and downward for the shorts – if these trends continue, they may well provide support to prices.

 

In silver, the NLFP dropped 299 contracts to 50,981 after a massive 21,942-contract increase in the previous week, according to the latest CFTC data. That massive jump was on 19,073 contracts of short-covering; last week, there were 1,579 contracts of long liquidation and 1,280 contracts of short-covering, the latest data shows.

Given the weakness in silver prices, it is surprising that there has been neither short selling nor much long liquidation.

The large gross long position and the low gross short position seem somewhat odd considering the price performance. On the one hand, the silver market looks vulnerable to stale long liquidation; on the other, the falling gross short position suggests the shorts are not trying to force the longs into liquidation. What the chart shows is that the longs have established a considerable long position now.

Given that the long position is near its extreme and the short position is low, we would be on the lookout for another round of short-selling that may well prompt long liquidation.

 

 

Gold ETF holdings started to fall at the end of February, halting the upward trend that had been in place since the start of the year. Although they briefly stabilised in April, holdings have fallen again since the start of May and are now at 1,603 tonnes – they fell 20 tonnes in May.

Silver ETF holdings picked up sharply in April after falling sharply in March. But physical holdings have declined at an accelerated pace since late April, reaching new lows for the year. As of May 29, physical holdings of 19,039 tonnes were down 307 tonnes from the start of May. 

 

(Editing by Mark shaw)

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