Traders have staked out the largest position ever in the COMEX silver futures. The number of open contracts on the COMEX passed 200,000 last week.
Given the recent downward bias in prices, most of the trades were initiated by speculators betting prices will go lower still. But they have been matched with buyers looking for prices to head the other way.
These contracts represent more than a billion ounces of silver – the highest in recorded history. Extremes in open interest often foretell a big price move is coming – in one direction or another. The leverage in the futures markets makes these extremes explosive. All that is needed is a catalyst (Greece?) to start prices moving, putting the squeeze on traders in the wrong position.
The case for lower silver prices rests primarily on strength in the U.S. dollar, weak-looking price charts, and fears the world may enter a period of economic weakness and turmoil prompting a 2008-style sell-off in most assets, including metals. There is a legitimate reason for concern. However, while lower silver prices are possible, we certainly wouldn’t be betting on it.
The case for higher silver prices is as good as it has ever been. The U.S. dollar sits precariously near its highs. Silver production has peaked and looks likely to fall rapidly as miners struggle with prices below the cost of production. And, at more than 4 years old, the cyclical bear market in silver is getting quite long in the tooth.
It’s a great time to buy and hold unleveraged physical metal and see what happens. Here at Money Metals Exchange, we’ve seen an uptick in buying recently. We agree with our customers, the next few months promise to be extraordinary.
About the Author:
Clint Siegner is a Director at Money Metals Exchange, a precious metals dealer recently named "Best in the USA" by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.