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Silver Open Interest at 2008 Levels, Speculators Short

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Silver gets no respect – highest open interest of shorts since 2008. Is there a short-squeeze in order?

Christopher-LemieuxSMBullion.Directory precious metals analysis 23 September, 2014
By Christopher Lemieux

Senior FX and Commodities Analyst at FX Analytics

Given recent declines to a four-year low, net-short contracts in silver futures grow with traders believing the decline will continue for sometime. Open interest in Comex futures increased 3.4 percent last week to 176,501 contracts, the highest level since February 2008.

Money mangers, after liquidating precious metals to buy some BABA, increased their short exposure in a metal that is still oversold.

Silver prices are looking for a monthly decline for the third straight month amid slowing global growth expectations and the possibility for higher borrowing costs. Silver prices have fallen 8.8 percent in September, largely on language from the blowhards out of the Federal Reserve.

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But is silver on the verge of a short-squeeze?

The daily RSI is just above 30, after bouncing from a low of $18.325 per ounce. However, it is interesting to point out that when the level of bearishness reached these levels, silver was not oversold. In fact, it pushed higher later in the year prior to declining to $8.40 an ounce.

This was, essentially, were silver formed a bottom and began its march to prices not seen since the late ’70s (stagflation, anyone?).

I’ll speculate on speculators. Prices could go lower into an extreme oversold condition, but that only breeds an environment for a large short-squeeze with the market overly bearish.

Keep in mind, when this level of bearishness hit in 2008, a price bottom was formed prior to its bull run.

Could traders be looking to long silver prior to the Fed’s unwinding of the last bit of QE next month?

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