Buying Low, Selling Never

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This article sheds light on the potential direction of gold and silver prices. We discussed last week the current positioning of traders in the COMEX precious metals. However, the situation has improved even more in the days since and, because we're all interested in saving a few dollars and buying low, I figured that it was a good idea to provide this update.

Unveiling the COMEX Silver Market Landscape

First of all, if you missed last week's silver price analysis, you should probably start by giving it a look over. There's a lot of raw data to suggest that the silver price lows for this current cycle are near, and this article provides some history and a recap: The Next Silver Price Short Squeeze.

Key Silver Price Insights From Historical Data

In short, if the bullion bank trading desks are able to manage and manipulate price, then having knowledge of their positioning should give you an advantage in understanding which direction price is likely to head next. At present, the bank desks are getting long (expecting price to rise) against a growing short position of the hedge funds. This happened several times in late 2022, and each instance preceded a sharp silver price rally. It's happening again now.

Recent Developments in the Silver Market  

In the week since the previous post was written, the COMEX positioning has "improved" yet again. The latest Commitment of Traders survey was taken at the COMEX close on Tuesday, August 15, and it was reported on Friday, August 18. What did it reveal? See below:

As you can see, during that most recent reporting week and as price fell by 16¢, the swap dealers (bullion bank desks) added 741 new long positions while covering and closing 4,738 of their shorts. This was to counter the opposite move by the hedge funds, which sold 275 longs while adding 2,614 new shorts.

By subtracting the gross short number from the gross long number, we come up with a NET LONG figure of 5,978 contracts for the banks. The same calculation yields a NET SHORT position of 6,670 contracts for the hedge funds. While these levels are not yet at the extreme levels seen on multiple occasions in late 2022, they're certainly getting close.

Silver Price: A Pattern That Echoes Past Trends

Below is the Commitment of Traders report taken on Tuesday, February 28, 2023. Compare this to the table posted above from the report last week.

Next, let's identify February 28, 2023 on a COMEX silver price chart and check to see what happened in the days and weeks that followed...

A slightly lower low followed in early March, but so did a massive rally that took price up $6, or about 30%, in about five weeks. What drove that rally? In the face of rising prices, the hedge funds covered shorts and added longs. The same will be true on the next rally. 

Gold: A Similar Story Unfolds

And a similar setup is building in COMEX gold. While the banks are rarely, if ever, net long COMEX gold contracts, their positioning ebbs and flows with price. Below is the table for the banks and the hedge funds in COMEX gold, taken from the survey of last Tuesday, the 15th.

What do we see? The same pattern as in COMEX silver, just with larger totals. Note that during the reporting week of August 9-15, the banks sold some longs but covered 22,200 of their shorts as price fell by $24. And what were the hedge funds doing? The opposite, of course. They also sold some longs, but they also added 27,631 new shorts! 

The NET numbers are not as stark as they are in COMEX silver, but they are within the same historical context. If we do the math, the hedge funds were NET LONG just 29,536 contracts last Tuesday, and that's the smallest reported position they've had as a group since the report that was surveyed on March 7, 2023, when they were net long just 14,399 contracts.

What happened next? You'll recall that the Silicon Valley Bank story began to break on Friday, March 10. This set off a short-covering and long-buying frenzy by the hedge funds, and you can see the result on the chart below. Price rallied $230, or about 12%, in five weeks.

Anticipating Upcoming Trends in Precious Metals Price

In conclusion, the current Commitment of Traders report’s positioning suggests that COMEX gold and silver prices are very near another cycle low. The next move higher will begin shortly, and it will be driven by panicky hedge fund managers, who will rush to cover their short positions (buy) and add new long positions (another buy). We can't know when this next rally will start, nor can we know what events will light the fuse. But we do know that the banks always seem to "win" and the hedge funds consistently "lose". As this game plays out again, look for higher precious metals prices in the weeks to come.