A New Silver Whale?

Data published in the Commitments of Traders (COT) reports over the past four reporting weeks indicate a number of highly unusual changes in COMEX silver futures positioning. One such highly unusual change is the emergence of a big managed money trader on the short side, which appears to be holding a net short position of roughly 10,000 contracts (50 million oz) in COMEX silver futures contracts.

This large managed money short trader first appeared a few months back and after reducing its short position profitably on lower prices, has come back on the short side as aggressively as at previous peak short levels. There’s no way of knowing in advance whether this big managed money short will be able to buy back the current large short position on lower prices again, but fortunately we will come to learn that in future COT reports.

It doesn’t bother me in the least that this big managed money short exists, for the simple reason that at some point – with silver prices lower or higher – this trader will buy back its large short position, as it stands no chance of closing out the short position by actual physical delivery. And while it’s possible, I don’t see this big managed money short as working in concert with the highly collusive COMEX commercial shorts. As such, knowing this trader must buy back this large short position at some point, I consider  the existence of the short position as positive to the direction of future silver prices. Even if this trader buys back lower, the buying will be a supportive influence for the price of silver. If this trader is forced to buy back on higher prices, that will only enhance the buying frenzy I see ahead in my Code Red market emergency.

But it is the evidence of the emergence of new big silver long in COMEX futures over the past four reporting weeks that is, potentially, much more exciting. The evidence lies in the increase in the concentrated long position of the 4 largest traders in COMEX silver from 20,253 contracts on July 3 to 30,702 contracts as of July 25, the most recent COT report. (Usually, I speak of the concentrated short position in silver as the mechanism for the decades-old price manipulation, so please note that I am pointing to the concentrated long position at this time).

What makes the new concentrated long position in silver so unusual is that in times past, any concentrated long position was usually held by the managed money technical funds and when silver prices eventually traded lower due to commercial price-rigging, the big managed money long positions were also flushed out to the downside. But this time, the big new concentrated long position, which I would estimate as being around 10,000 contracts (50 million oz), appears to be held by a trader in the other large reporting category and not by a managed money technical fund long(s).

I further believe that the big managed money short that is holding a 10,000-contract short and the trader in the other large reporting category holding a nearly  identical large long position to be completely unrelated and coincidental. Aside from that, I consider the large long position to be potentially much more significant and would like to explore my reasons for thinking that way.

Please know upfront, that there is no way I can predict what this new large silver long will do in the future. That will only be learned as time progresses and the actual data is reported in future COT reports. At the same time, however, if I suspect something important is afoot in silver, I don’t see what is to be gained by keeping it to myself and not reporting on something that could be profoundly important.

The 10,000-contract long position involves a derivatives’ position equal to 50 million oz at a rough average cost of around $24.50 or so, meaning that if the big new long established over the past four weeks, chickens out and sells out on a three-dollar selloff, the loss would come to $150 million. Conversely, if the new big long gets “lucky” and bails out after a three dollar increase in the price of silver, the gain would also be $150 million, or $50 million per each dollar move in the price of silver – same as if there was a loss of three dollars. And on an initial margin of roughly $125 million, that’s plenty of leverage for the biggest short-term trader.

Perhaps I’m fantasizing, but I can’t help but read more into this particular long position, especially considering my recent Code Red market emergency warnings for COMEX silver. For one thing, the establishment of the position looks to me to be a work of art, in that there is no other way that I can conceive that such a large position in silver could possibly be established other than by a steady accumulation of COMEX silver futures contracts in the manner seen over the last four weeks. No one could buy the equivalent of 50 million oz in any other venue – cash, silver ETFs, or any other manner – in four weeks without setting the price sharply higher.

In other words, the magic and promise of this new long position is that it was established with minimal impact on price and that gives me hope that it is more than just a short-term speculation (I believe the big managed money short position is nothing more than a short-term speculation). Moreover, this new long position was established at precisely the most critical and promising time in the history of the silver market. That’s because of the deepening and increasingly undeniable physical silver shortage and the current Code Red market emergency in COMEX silver. There’s just never been a better time for a knowledgeable and well-informed trader to come into silver big.

As such, the new big silver long is in a remarkably-unique position and should he (or she) intend that this position be held for the long-term and not as simply a short-term speculation, please allow me to be so bold as to offer some (free) advice, since it’s possible the big long may have run across my writings and that may played a role in acquiring the position.

My first advice would be to not, I repeat, not to increase the position beyond the 10,000-contract level. In fact, I believe the only reason the corrupt regulators at the CFTC and CME Group have not already moved against the new big long (ordering a reduction in the position) is that, despite their desire to do just that, the concentrated short positions of a few traders is at or around the same 10,000-contract level and that affords a degree of protection against the regulators ordering the long position reduced. 

There can be no doubt that the regulators favor and have coddled the big shorts in COMEX silver and have done so for 40 years, following the Hunt Bros runup and collapse of silver prices in 1980. In fact, the new big long, should he or she decide to stick around for the long-term, should keep the Hunt Bros’ experience in mind. By that I mean to learn from what the Hunt Bros did wrong, namely, buying silver futures and physicals with the intent of driving silver prices higher.

While I would advise the new big long to cease buying COMEX silver futures contracts regardless (because the position is now large enough), should the big trader choose to buy silver in other forms, such as in ETFs or options, or physicals, that would appear to be OK – unless and until silver prices start rising in earnest. At that point, the big long must stop, lest he or she be prepared to suffer the same fate as the Hunt Bros.

Let me be very clear that I am rooting for the new big long to succeed, as should be the case for every silver investor and silver mine producer in the world. Just as the regulators always do whatever they can to help the silver shorts to succeed, I make no bones at cheering the new big silver long on.

Other advice to the new big long is to be careful about demanding too aggressively physical delivery on the long futures contracts, lest he or she be accused of causing market “congestion”. If the new long is subject to the US tax code, then, of course, it makes sense to convert to physicals instead of holding futures, as physical holdings are not taxable until sold, whereas those holding futures or other derivatives (options) are subject to yearend taxable mark-to-markets. But the big long must know the regulators will be gunning for him or her, regardless of the actual circumstances.

In a departure from telling the new big long what not to do, let me offer a suggestion as what to do. At the earliest practical opportunity and when the new big long feels sufficiently long, I would very much openly advertise the position and, even more importantly, the reasons for acquiring the position, namely, because silver was so cheap in price due to the long-term COMEX silver manipulation. This would be a great way, likely the best way of all, to get the real silver story out, as well as encourage others to buy silver.

To be sure, the new big long had best employ top-notch legal help to ward off the inevitable regulatory challenges, even though in a court of law and of collective opinion, allowing big shorts to dominate the price of silver, while trying to crack down on the first big long to come along shouldn’t sit well. Cracking down on longs while protecting big shorts at silver’s current super-depressed prices doesn’t sound like a winning ticket – even for the corrupt regulators.

As I just wrote, I don’t know what the new big silver long will or won’t do -  but the possibilities are exciting. Superimposed on what I already claim is an existing market emergency in the COMEX silver market, this new long  only intensifies the emergency – not because the position is too large, but because the concentrated short positions (including that of the big managed money short) is too large.

After witnessing the blatant price-rigging on Thursday, it looked more certain than ever that the big shorts would succeed in a full flush out to the downside. While, unfortunately, that is still possible, after reviewing the data in the new COT report, it’s still possible the downside is by no means a certainty. And, yes, I still haven’t heard of any reasonable rebuttal to my Code Red warning – certainly not from the regulators.

Ted Butler

July 31, 2023

www.butlerresearch.com