Speculators Flee Gold And Silver…Is It Time To Buy?

May 7, 2017

Summary

The largest silver ETF SLV was down 14 consecutive days, the longest losing streak in its history.

Both gold and silver speculators significantly cut their net long positions.

Gold speculative positions have now moved towards their historic averages, while silver is now down to healthier levels.

Silver's record-breaking down streak may be attracting non-specialist investors and thus keying a short-term bounce.

Other than a short-term bounce, we think silver needs to see strength in gold to really regain its footing (and the $17+ level), which we don't see yet.

The latest Commitment of Traders (COT) report showed a large drop in the speculative gold position, which was unsurprising given the weakness seen in gold over the past week. As for silver, speculators sold off silver long positions at one of the largest clips we have on records. Given silver's record-long down streak, as represented by iShares Silver Trust (NYSEARCA:SLV) which was down for FOURTEEN consecutive sessions, it is no surprise that we have seen such a drop in bullish silver speculators.

But Is It time To Buy Silver?

We will get more into some of these details but before that let us give investors a quick overview into the COT report for those who are not familiar with it.

About the COT Report
The COT report is issued by the CFTC every Friday, to provide market participants a breakdown of each Tuesday's open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. In plain English, this is a report that shows what positions major traders are taking in a number of financial and commodity markets.

Though there is never one report or tool that can give you certainty about where gold and silver prices are headed in the future, the COT report does allow the small investors a way to see what larger traders are doing and to possibly position their positions accordingly. For example, if there is a large managed money short interest in gold, that is often an indicator that a rally may be coming because the market is overly pessimistic and saturated with shorts - so you may want to take a long position.

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In every cubic mile of sea water there is 25 tons of gold