The Bullish Silver CoT Report and Gold/Silver Ratio
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
The Commitments of Traders (CoT) report provides a snapshot of futures positions held by both large and small commercial hedgers and speculators, showing what positions big money traders are taking in a number of financial and commodity markets. This report, released each Friday by the CFTC at 3:30pm EST, allows the small investor to get a glimpse of what larger traders are doing and to possibly situate their trades accordingly.
The gold and silver CoT’s provide us with the “Managed Money” positions and total open interest figures, along with an idea of how much interest there is in the precious metal market and how the short-term players are positioned. Since the report is issued on Friday but only contains Tuesday's data, there is a three-day lag between the report and the actual positioning of traders, so I have found the reports to be of better use as a sentiment indicator.
Since gold and silver trade mostly in tandem, their respective CoT reports have historically shown similar speculator positioning. However, there has been a very unusual dis-connect taking place between the gold and silver CoT’s, which began just after the high volume, mini panic in the global marketplace ended on February 9th. Large speculators have been adding larger LONG positions in gold (bearish) and have been adding larger SHORT positions in silver (bullish).
Based on the last report issued on March 27th, the situation in the silver CoT has become even more bullish, while the gold CoT has become more bearish. The managed money futures traders (hedge funds) have moved to a net short position to the tune of more than US$1 billion net notional. Based on the available 15 years of sliver CoT data, this is the first time large speculators have become net-short, creating a condition where even if silver does drop in sympathy with gold in the short-term, it is unlikely to be by much.
Another bullish factor taking place in the precious metal space has been the recent climb in the gold/silver ratio, which has been trending above 80 since the silver and gold CoT report dis-connect began in early February. During the last 20 years it has rallied above the 80 level on three different occasions, which all turned out to be excellent long-term opportunities to buy both silver and the precious metals mining shares. The last time this occurred was in early 2016 and the GDX soared 180% higher in just six months, while many silver juniors made 8x to 10x moves in that time span.
Taking both of these bullish factors into consideration has been the motivation for me to be more over-weight in my portfolio with quality juniors which possess the highest leverage to the silver price. If you require assistance in choosing the best quality junior resource stocks to invest, please stop by my website and check out the subscription service at http://juniorminerjunky.com/