Commercial Shorts And the Market for Metals..

“The CFTC also publishes a Bank Participation Report [2] on a monthly basis. This report gives the long and short positions of Banks who hold positions in commodities grouped as foreign and domestic. They also state how many banks make up the domestic bank holding and the foreign bank holding. In silver there are only two US Banks involved and in Gold there are three.

 

The position of the banks is also included in the “Commercial” category of the COT. So once per month we can see what share of the commercial trading in gold and silver is performed by these US Banks.

 

To observe what influence anyone is having on the market we have to determine what “Net Position” they hold. If you were to buy 100 contracts long of silver and sell 100 contracts short at the same time, your influence on the market price will be nil. If however you buy 10 contracts long and you sell short 100 contracts your effect on the market price is a function of the net short position of 100-10=90 contracts.

 

The commercials collectively are nearly always net short. Their effect on the price is a function of the commercial net short position which is the total commercial short position minus the total commercial long position. To determine how influential the positions of the US bank participation are in the market we need to compute what percentage the net short of the banks represents compared to the total commercial net short position.”

 

Adrian Douglas in “Pirates of the Comex”

 

Comment:

 

 As the article indicates, the commercials have a huge influence on gold and silver prices. Investors may be buying but if the commercials are short, that is going to cap the prices.  That’s one reason why I am not (yet) long gold and have only a small silver position.  And I’m not nimble  or confident enough to short something that’s in a long-term bull market.

 

(By the way, my trader comments are only asides. I am not a professional trader of any kind., and only manage my own money because bank accounts don’t pay enough to cover inflation and brokers – in my experience –  are mostly good for leaving you broke. As I’ve said elsewhere,  I’m an ex-school teacher and academic, who would much  rather have nothing to do with finance, if I could. But I can’t.)

 

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