Better-than-expected nonfarm payroll numbers for the US economy, a bailout for the troubled Franco-Belgian bank Dexia and hopes of a “comprehensive package” from France and Germany to deal with the European sovereign debt crisis by the end of this month have lifted hopes (temporarily at least) at stock and commodity markets. Gold, silver, platinum and palladium prices have all moved higher during the Asian trading session, with gains also seen in copper, crude oil and corn futures – signs of growing bullishness among traders.
That said, volatility and uncertainty remain the hallmarks of commodity and equity markets at the moment. Any remotely bearish news on Europe will immediately result in selling in commodity and equity markets, and renewed strength in the US dollar (which has moved lower today as a result of increasing – albeit fragile – confidence in Europe). As far as gold and silver prices are concerned, both of these metals are continuing to consolidate. $1,680 per ounce remains a key resistance level for gold at the moment, with strong buying support evident around $1,600. Silver is well supported below $30, but keeps stalling on attempts to reach $33.
Open Interest in Comex gold and silver futures has declined notably in the last few weeks, which as Dan Norcini notes in his latest King World News interview is indicative of the volatility affecting these markets at the moment, which has scared many small and even large speculators out of the market.
As reported on this site last Monday, silver has seen an especially large drop in the net-short positions held by the entities classified by the US government’s Commodity & Futures Trading Commission as “commercial” – that is, producers and silver merchants, including some of the largest banks in the country. All told, as the GotGoldReport notes, the large-commercial net short position in Comex silver futures is now at its lowest level since April 1 2003. Back then, the silver price stood at just $4.43 per ounce.
What does this mean for the silver price in the short-term? Anything is possible – more bad news from Europe (possibly linked to the Slovak parliament not agreeing to increase funding for the European Financial Stability Facility, something which needs agreement from all eurozone parliament’s could once again derail silver’s advance, and send it back below $30. But as the GotGoldReport states – and the key takeaway for silver bulls from these very low net-short positions:
“As of Tuesday, the largest, best funded and presumably the best informed commercial traders of silver futures continued to get much “smaller” in their net short positioning for silver futures. There can be no doubt that the commercials view the current downdraft for silver as a silver plated opportunity to very strongly reduce their short bets in the leveraged paper silver contracts.”
That is, the largest and best-informed players in the silver futures market think that there’s not much downside to the silver price from here. Those people still holding net-short positions in silver futures may be in for an unpleasant surprise before too long.