The Bullish Silver CoT Report and Gold/Silver Ratio
The Commitments of Traders (CoT) report provides a snapshot of futurespositions held by both large and small commercial hedgers and speculators, showingwhat positions big money traders are taking in a number of financial andcommodity markets. This report, released each Friday by the CFTC at 3:30pm EST,allows the small investor to get a glimpse of what larger traders are doing andto possibly situate their trades accordingly.
The gold andsilver CoT’s provide us with the “Managed Money” positions and total openinterest figures, along with an idea of how much interest there is in the preciousmetal market and how the short-term players are positioned. Since the report isissued on Friday but only contains Tuesday's data, there is a three-day lagbetween the report and the actual positioning of traders, so I have found thereports to be of better use as a sentiment indicator.
Since goldand silver trade mostly in tandem, their respective CoT reports havehistorically shown similar speculator positioning. However, there has been avery unusual dis-connect taking place between the gold and silver CoT’s, whichbegan just after the high volume, mini panic in the global marketplace ended onFebruary 9th. Large speculators have been adding larger LONG positionsin gold (bearish) and have been adding larger SHORT positions in silver(bullish).
Based on thelast report issued on March 27th, the situation in the silver CoThas become even more bullish, while the gold CoT has become more bearish. The managedmoney futures traders (hedge funds) have moved to a net short position to thetune of more than US$1 billion net notional. Based on the available 15 years ofsliver CoT data, this is the first time large speculators have become net-short,creating a condition where even if silver does drop in sympathy with gold inthe short-term, it is unlikely to be by much.
Anotherbullish factor taking place in the precious metal space has been the recent climbin the gold/silver ratio, which has been trending above 80 since the silver andgold CoT report dis-connect began in early February. During the last 20 years it has rallied above the 80 level onthree different occasions, which all turned out to be excellent long-termopportunities to buy both silver and the precious metals mining shares. Thelast time this occurred was in early 2016 and the GDX soared 180% higher injust six months, while many silver juniors made 8x to 10x moves in that timespan.
Taking bothof these bullish factors into consideration has been the motivation for me tobe more over-weight in my portfolio with quality juniors which possess the highestleverage to the silver price. If you require assistance in choosing the bestquality junior resource stocks to invest, please stop by my website and checkout the subscription service at http://juniorminerjunky.com/
By David ErfleContributing tokitco.com
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newsfeedback@kitco.comwww.juniorminerjunky.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.