More Pain, Then Massive Gain: Silver and Gold Analysis

The COT data for Silver certainly tells a story:

COT data for Silver

The Banks have cut their net short position by 25k or 57%, more than half, in just ten weeks. This is huge! SLV fell 17% over the same period.
The Banks appear desperate to get out of their shorts as soon as possible. Their peak net short position was 44k on Oct. 22, and now it’s at 19k.

Why Are the Banks Dumping Silver Shorts?

Why are the Banks in such a hurry to dump shorts? Perhaps it is because they know a rally is coming and it’s going to be spectacular. If true, they would probably like to get long before that happens. With 19k net short contracts and the goal of getting long, this would suggest that we have further downside to go yet, but once we get there, watch out for fireworks to the upside.

Gold’s Slow but Sure Movement

Gold is headed in the same direction, but it’s nowhere near as dramatic as Silver:

COT data for Gold

The Banks’ peak net short position of 260k is a record high. As of Dec. 31, their net short position is 198k. This equates to a cut in shorts of 62k or 24% in fourteen weeks. GLD fell just 1.6% over the same period.

This means that the Banks are trying to get out of the shorts at every opportunity. They are covering their shorts at elevated prices rather than wait for lower prices. This signals that they don’t want to be caught heavily net short ahead of the next rally in Gold.

Analysis of Gold and Silver Prices

I still expect further downside first, but once Gold bottoms, watch it rally to new record highs, imho.

GOLD

CFDs on Gold

While others are looking up, I’m still focused on the downside. Negative divergences on all indicators signal Gold has lower to go. If this is an A-B-C correction, I’m expecting c of C next, down to as much as $2500-$2400 for the bottom. However, if this is 5 waves down from the peak at $2802, then Gold could fall as low as $2200-$2100, worst case.

SILVER

Silver Futures

It’s a similar look for Silver. I’m just waiting for it to turn down. If an A-B-C correction, then $26.50 is my primary target for the bottom in C. However, if we are going to get 5 waves down from $35.07, Silver could fall all the way down to $22-$21, worst case.

Long-Term Outlook: Silver’s Outperformance

In summary, I am still bearish short term, but put on your seatbelts once the metals bottom for a ride higher. This time around, Silver will crush Gold in terms of performance, imho. I believe $40+ is a conservative target. Just not yet.

Buy gold and buy silver today to secure your financial future.