Silver Bullion: Should We Be Worried About Silver?

– Bloomberg’s Mike McGlone silver “set to test the $18 an ounce resistance level”

– LBMA report: volume of silver ounces transferred in February fell by 24%

– Standard Chartered: gold-silver ratio and supply/demand fundamentals favour silver

– Gold/silver ratio at near two-year high on silver’s underperformance

– Silver COT reports remain more bullish than at any time in history

– Silver expected to outperform gold as macro and industrial factors begin to drive price



The silver price has perhaps disappointed many investors of late. Two key institutional metrics released in the last fortnight may have made things worse, however not all is at it seems.

The latest silver COT reports have shown that Managed Money positions are net bearish, the most recent is for the seventh week in a row. Meanwhile an LBMA report this week shows that the volume of silver transferred in February fell by 24%.

Whilst both of these suggest that the silver price might continue to resist further climbs, the contrarian perspective suggests otherwise. Analysis of past COT reports, previous gold/silver ratios and a close look at macro fundamentals should give investors (and those considering buying silver) reassurance that the silver price could be set to make some key moves.

COT report 

Last week’s COT data showed Managed Money positions hold are net bearish for the 7th week in a row. This is the longest net negative stretch in over three years (since late 2014).

The March 20 COT report ‘showed an all-time record high Large Speculator NET short position and an all-time record low Commercial NET short position with the Small Specs as the only category still showing a small NET long position.’

As we explained last week, COT data shows that ‘we are close to bottoming and suggests that both gold and silver should make gains in the coming weeks and months. The data showed that the hedge funds and “Managed Money traders,” the “dumb money” speculators now have record short positions in silver.’

At the same time, the large commercials and including large bullion banks such as JP Morgan, the “smart money” and the “inside money” have reduced their shorts dramatically and are now long.

The COT report shows ‘Managed money’ silver specs have their largest short position in at least 28 years and maybe ever. From a contrarian perspective this is very bullish.


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Usually we would expect gold and silver to behave similarly when it comes to the futures market as generally the same factors affect both metals. Whilst recent silver COT reports showing large speculators giving up on and even shorting silver is (from a contrarian perspective) extremely bullish, there is a paradox with the gold COTs which are arguably bearish. Many analysts believe this is a positive sign that the silver price is set to climb, but not before falling.

In recent weeks we have commented on the divergence occurring between both gold and silver.

‘What does this mean? One possible explanation is that silver has gotten too cheap relative to gold and needs to be revalued. That could happen in several ways, with both metals rising but silver rising more, or both falling but silver falling less. Or with gold dropping while silver rises,