Something BIG Is About To Happen To Silver

Yes, that’s correct. Something BIG is about to happen to silver.  Now, how this plays out is hard to tell.  Recently released new data points to a situation that will force a BIG move in the silver market.  In addition, there have been some very interesting movements in the flow of silver bullion.

As I mentioned in the article Why Is The U.S. Importing So Much Silver Bullion??,  U.S. silver bullion imports surged 44% in the first months of 2015 compared to the same period last year.  We can see this in the chart below:

U.S. Silver Bullion Imports 2014 vs 2015

During Jan-Feb 2015, the U.S. imported 838 metric tons (mt) of silver bullion versus 583 mt last year.  Moreover, I mentioned that overall demand for silver in the first quarter of 2015 is either flat or down compared to last year.  So, why would the U.S. silver market need additional silver bullion if demand is lower?  Who is acquiring this silver… and why?

This brings me to the newest data put out by the CFTC.  According to the most recent COT Report, the Commercials (big bullion banks) added a massive 18,595 new silver short contracts in just the last week.  This is off the charts.  If we look at the chart below, we can see just how big this single week increase compares to the changes over the past year:

SILVER COT Chart 1 Year

The RED LINE in the chart below the silver price chart is the change in Commercial net short positions.  You will notice that most of the changes in the past were more subtle. The Red Line changes in a stair step pattern, either up or down.  The majority of the times, the step changes are very gradual.  However, this past week was a huge step down of a net short position of 24,362 contracts.

For all the new folks out there, let me explain this chart a little better.  The Red Line represents the net short position of the Commercial bullion banks.  As the Red Line heads lower the Commercials are adding more shorts, and as it moves higher, they are reducing shorts. You will notice a particular trend.  As the price of silver moves higher, the Commercials add more short positions, which act as more leverage against a higher price.

On the other hand, as the price of silver falls, the Commercial net short position declines as well.  Basically, they are liquidating or covering their short positions. If we look at the chart above, we can clearly see that when the Commercial net short position reached a high, so did the price of silver.  Here are the corresponding dates:

July 15, 2014 – Commercial Net Shorts = 58,696 – Silver high price = $21.53
Jan. 22, 2015 – Commercial Net Shorts = 61,593 – Silver high price = $18.49
May 19, 2015 – Commercial Net Shorts = 62,485 – Silver high price = $17.74

Each time the Commercials held the highest amount of net short positions, the price of silver peaked.  And, as the price fell to a low, the Commercial net short positions bottomed.  Not only is the Commercial net short position the highest all year, it’s the highest it’s been in over 4 years:

SILVER COT Chart 4 Year

The blue dotted line represents the current high amount of Commercial net short positions.  Now, when the net short positions increase, the line goes lower.  The reason for this is the net short is shown as a negative position (in red), and the net long-held by the Large Specs (in green) is shown as a positive position.

So, if we go back all the way to 2011 when silver traded at its record high of $49, the Commercial net shorts weren’t as large as they are today.  For some reason, the Commercials were motivated to add the most short positions in one week for more than four years running.

The only other time the Commercial net short position increased similar to this past week was back in June 24, 2014 when it surged 20,059.  However, the reason it jumped that much that week was due to the Commercials liquidating 7,733 long contracts while adding 12,326 shorts for a total net short position increase of 20,059.  The last weeks silver COT report update showed the Commercials liquidating 5,787 longs and adding 18,575 shorts for a total net short position increase of 24,362… over 4,000 more than the highest in the year.

We also must remember that when the Commercials reduce their long contracts; it acts as an increase to their net short position.  That being said, over the past four years the Commercials never added as many short contracts in one week as they did last week.

What does this all mean?  Well, if we go by the trend for the past several years, the Commercials are betting that the price of silver is heading lower.  How much lower??  Who knows, but the Commercials now have the most net short leverage since their last record net short position on Jan 22nd, when the price went from a high of $18.49 to a low of $15.26, just two months later.

Could Silver Skyrocket Higher On A Massive Short Squeeze?

This is the forecast put forth by Bo Polny of Gold2020Forecast.com.  I have spoken with Bo on the phone several times and he has his own method in determining the movement in the precious metals.  He sent me this chart showing how the four-year descending triangle for silver was finally broke on May 18th.

Bo Polny Silver Chart GIF

Bo believes the price of gold and silver will breakout before the summer, June 21, 2015.  So, there you have it.  The Commercials have placed their bets looking for the price of silver to move lower, while Bo believes we are going to see a massive short covering rally due to silver breaking out of the four year descending triangle.

With the possibility of Greece exiting the EURO, the situation in the global financial system could become very interesting.  There is a good chance the Greek exit could happen quickly.  Thus, a BIG move higher in the precious metals prices could possibly be the result.  Let’s see how the next month plays out.

As you all know, I am more of a long-term fundamental investor in the precious metals. I believe the peak and decline of global oil production will wreak havoc on the valuations of most paper assets.  Owning precious metals during this time will be one of the best investments or stores of wealth.  There is no limit to how high the value of gold and silver could reach as the Greatest Paper Ponzi Scheme in history collapses.

Nonetheless, we are going to see a great deal of volatility along the way.  Something strange is going on in the silver market that I can’t put my finger on.  There is no reason the U.S. should be importing a record amount of silver bullion as Silver Eagle sales are flat year-over-year, industrial silver consumption is likely lower, and the COMEX silver inventories didn’t really increase that much during the first quarter of 2015.

This makes the huge increase in the Commercial Net Short quite interesting. Something BIG is about to happen to silver.  The real question is… WHICH WAY WILL IT GO?

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46 Comments on "Something BIG Is About To Happen To Silver"

  1. Silverwillwin | May 27, 2015 at 8:24 am |

    “Gold is the anti dollar. The dollar is the power within the U.S.. The dollar is what the U.S. issues to buy goods overseas. That’s our trade item for those goods . The dollar is power so in order to show confidence in the dollar they’ve had to show weakness in gold and they’ve done that thru paper shorting.” Bill Holter.

    Bill Holter and Jim Sinclair feel that physical gold right now is valued at $ 50,000.00 +. Considering that physical silver should be 15 to 1 ratio with physical gold then that would bring the value of physical silver to be worth $ 3333.00 per oz. right now. Starting to see how much manipulation is going on around here !?

    • OutLookingIn | May 27, 2015 at 9:11 am |

      B.H & J.S. are not too far off the mark.
      On August 15 1971 when Nixon cut loose the dollar from gold, the US dollar to gold ratio was 8:1
      Using the monetary base (AMBNS) versus the price of US Treasuries, the current US dollar to gold ratio is 57:1
      Using the price of gold at a flat $1,200.00 per ounce, this results in gold value of $68,400.00 ounce.

      • Comparing the debt and obligations of ’71 vs. ’15 priced in PM’s…hard to fathom a free-market value for gold / silver? Steve does a great job trying to bring perspective.

        Add to that the current demographic breakdown providing a 50mph headwind (and still ramping up) vs. the tail winds of ’71…probably a very wise idea to have some PM’s as the only answer for ongoing inadequate demand will be more credit and debt…and primarily the worst kind, government debt which is created and spent without ever even intending to repay it.

        Biggest # of all seems to get no attention…demographics…it’s astounding the trigger for ’08 and the reason we can’t and won’t “recover” is right there…and nobody seems to talk about it. Click the link, check the first chart…mystery solved.

        It’s all about flow, not stock. And what’s more important than the flow of new population (declining core populations of consumers, homeowners, taxpayers, etc.). Ramping voracious old people wanting their social safety net.

        The data is soooooo clear…but then again it’s more fun just to make stuff up.

        http://econimica.blogspot.com/2015/05/2008-was-tremorwhy-main-event-is-still.html

        Added a chart showing the annual change in the 0-24 year old annual US population…which looks to be turning negative alongside the falling 25-64 year old segment. Soft consumer demand solved.

    • Max Meister | May 28, 2015 at 3:45 am |

      If Gold and Silver would ever reach such levels measured in US$, it would either mean hyperinflation for the US or somebody would press the button.

  2. conmercial shorts getting ready for a big jump in the dollar as Greece exits? That should send metals lower as euro flight to the dollar happens. Will be short lived, but seems like a good short term play to be short silver over the next 3 weeks

    • Silverwillwin | May 27, 2015 at 10:00 am |

      ” Will be short lived, but seems like a good short term play to be short silver over the next 3 weeks”

      …and or load up on the physical at the same time. Talk about leverage !

  3. Hi Steve.
    Alluring hypothesis; of course, sooner or later silver will explode higher, but I will not take my breath waiting for it.
    I think it is back again under the resistance line, isn’t it?
    Plus, in the last four years, previous descending trend lines have been broken at least two times ( august 2012 and june 2014) but both rallies were short lived.
    TA is a probability game also in honest markets: in rigged ones its forecast capacity is lower… much lower.

  4. “So, there you have it. The Commercials have placed their bets looking for the price of silver to move lower, while Bo believes we are going to see a massive short covering rally due to silver breaking out of the four year descending triangle.”

    I think charts are almost meaningless compared to the power of manipulation post 2011 highs, when the manipulation got serious and sophisticated.

    Until the COMEX system or paradigm is broken, COT reports [who is short & long, and how much] define where the direction price in physical will be. That said, silver can’t go much lower since it is being mined at below average producer cost. Unless there is a conspiracy theorist’ dream [secret strategic stockpile] to supplement mining production, production will decline in time at these prices, and if the price was lower production would decline faster.

    We must remember the can is being kicked down the road in ever-more-frequent and desperate ways. One more-desperate method is a massive increase in short position by the commercials [JPM et al]. It is very likely to be successful in holding silver spot in check or down a dollar or so…until the COMEX is broken.

    • Miner zombie companies can live many more years with silver in the single digit.

      • Just like oil companies can’t bleed losses forever and are pulling out of shale oil, mining companies can’t bleed losses forever and will progressively shut down mining operations. The lower the price they receive the faster this will happen. At the current prices it wouldn’t take years.

        • Indefinitively no, but sveral years even if I agree that when silver will go back in the single digit many small marginal miners will close but it will just reduce by a few % (less than 5% IMO) the production.

          • We would just have to see what would happen if silver dropped significantly lower, but information I have read [including on this website] and my geology degree tells me silver will not head into the single digits. If it goes lower Asia will “back up the truck” and get really serious about buying, increasing pressure on the price to rise.

            The massive commercial short position of JPM et al on the COMEX tells me they need that massive position at this time to keep prices down. The technical chart presented is one of several that does indicate building pressure on silver’s price [to rise].

          • David

            You can have 25 years geology background or 25 minutes, it does not matter. Only wall street decide the value of everything on else. period.

            BRICS still refuse to strike back…

  5. Call me crazy, but I think Greece will not slip away from the banking troika. I think they will go Cyprus, loot deposits, and stay within the EU and Euro. All this Grexit talk is starting to smell like red herring. This would set up a contrary (to the Grexit scenario) trade that could be back doored resulting in a wealth transfer from the citizenry to the central banks. There is concern only to delay reaction by angry Greeks until the trap is sprung. Crazier things have happened.

  6. The commercial short position is not a bet on lower prices… it is the reason prices have and will continue lower until they are net long again.

    Wash, rinse, repeat… transparent price manipulation by the chosen ones…

    • Silverwillwin | May 27, 2015 at 3:10 pm |

      “Wash, rinse, repeat… transparent price manipulation by the chosen ones…”

      Until the washing machine breaks down and the new landlord (China) wants the whole operation ripped out.

      The one holding the most physical gold ( and silver) will call the shots. ( We’ll see come Sept.)

      Enjoy wash, rinse , repeat for the last remaining cycles…..is that a clanking i hear………

      • The machine will only be broken by chinese officials but they are known but be very coward : they are strong with the slaves in their working camp but very keen with wall street and city lords…

  7. Silverwillwin | May 27, 2015 at 3:11 pm |

    ?

  8. The only time in recent history where the COT report wasn’t accurate, meaning large commercial net short position being inversely correlated to price, was fall of 2010, around the launch of QE2. We had a pretty high commercial net short position back then, and the position was covered into a price rise.

    But, as I’ve said, that was the only time.. every other time in the last 15, 20 years (or more), a COT structure like this one has indicated lower prices in the future.

  9. Some readers here have no doubt seen technical charts by this analyst: http://www.clivemaund.com/
    If you go to this link you will read “Providing professional chart analysis for over a decade covering a wide range of markets….”

    Regardless of how much research is done, or how passionate the technical chart maker is, they can only predict a building “pressure”. In markets that are manipulated, and probably all of them are, these charts are relatively meaningless as long as the manipulation continues. If there existed a market free or mostly free of manipulation these technical charts could be quite accurate predictors of when something was going to change. As it is I think of them as curiosities.

  10. There sure is a LOT of people here that have NOT done their “Financial History Homework”…You know..the one about the “Origins” of WHAT Real Money IS….Especially the one about its “Esoteric” origins!….WHO ever believes that PAPER money (In ALL it’s Forms) has real value, WILL LOOSE EVERYTHING THEY “THINK” THEY OWN….I truly feel sorry for those folks!
    ONLY. Those having in “Possession” Physical SILVER (90%) and Gold (10%) are going to “Clean-Up”…for as long as “Money” will LAST.

  11. silverfreaky | May 28, 2015 at 1:03 am |

    The next minercrash.All day down.The bottom isn’t reached.

  12. ok so the question then becomes: if the insiders know silver will drop, why is JPM taking possession of 350 -500 million ounces of physical right about now?
    Is JPM wrongfooted, or wrongfooting?

  13. It just means that silver is going lower as PBOC refuse to fight the comex speculators…

  14. silverfreaky | May 28, 2015 at 4:53 am |

    Look to the HUI-Index then you know what I mean.When the miner go down all day we are clearly in a bear market.

  15. GREXIT = huge selling pressure in gold/silver in comex pit. Period.

    What is so difficult to understand ?

  16. Steve: to me, anyway, the obvious price direction is up for the simple reason that the current price is still below production cost, which cannot be sustained for much longer. Whether or not, as Butler surmises, JPM has amassed a huge hoard for itself or a major client (China?) is relatively immaterial, although quite interesting. The key is that supply/demand is in dis-equalibrium (backwardation) which runs against one of the only true and irrefutable laws of economics.

  17. silverfreaky | May 28, 2015 at 6:40 am |

    70% percent of the silver comes from the basic mines.
    The primär silver mines reduced their costs.The big break down in silver mining companies i didn’t see until yet.

    So don’t believe that this item will produce a serious smaller supply in the next time.

  18. But what kind of silver to buy ? Just the ‘more bang for the the buck’ generics ? Buffaloes, OPM, etc?

  19. Silverwillwin | May 28, 2015 at 8:10 am |

    “But what kind of silver to buy ?”

    Start with pre 1964 dimes , quarters and 1/2’s . They will be readily identifiable by Joe Q Public and accepted by the gov. as real money. The only thing that will be different will be the value.

    Next move to silver American eagles SGE’s . Thet will also retain respect within trading ability.

    Silver rounds and silver bars should be last…pick your audience carefully using these.

    • Silver Win: When the SHTF, PMs (of any type) will be relatively useless until a new currency is created with which to measure them by. For the first 6 months, it will be survive, barter, and protect your family, food, etc. When the price of silver hits the stratosphere it can either be accepted in commerce or, if not, will be worth its melt value for industrial requirements. You will need to know where the nearest refinery is located. BTW, they won’t care if they are melting Eagles, Pandas, or generic rounds/bullion.

      • Silverwillwin | May 28, 2015 at 10:04 am |

        andyb you said ,

        ” When the SHTF, PMs (of any type) will be relatively useless until a new currency is created with which to measure them by. For the first 6 months, it will be survive, barter, and protect your family, food, etc.”

        I kinda disagree with this a bit. Just like bartering , physical gold and silver will play nicely, streamlining such buy and sell activity.

        There should be enough experts out there to call the true value for an average price for both physical gold and silver.

        Granted this will not be an exact science at first , though it should play into being a personal exchange dynamic between the holder of precious metals and the party wanting to get their hands on some while at the same time having an asset to sell.

        Nothing will stop that from happening.

    • Durchsnittsburger | May 30, 2015 at 11:48 pm |

      At a recent auction I saw 60 Eagles sell for 30% above spot price that included a 15% buyer premium. This with silver price relatively static.

  20. silverfreaky | May 28, 2015 at 9:13 am |

    Buy fine silver 999 as cheap as possible.The collecting value has no big effect when silver value increases.

    Then each oz is important.

  21. The gold/silver ratio has been 16 to 1 for centuries. When gold was$810 an oz in 1980/81 the silver price was $50 an oz and the ratio was 16.2.

    Today an oz of gold is $1192. Why is the price of silver not $74.50 an oz? Does someone who is loading up on silver know something the rest of us don’t?

    • Silverwillwin | May 30, 2015 at 6:27 am |

      Matt ,

      You’re starting to come off like a Greg Hunter with the interview questions ~ all good me thinks !

      You have to realize that physical metals and paper transactions of any kind referring to gold and silver as two entirely different extremes…..period .
      By and large the only connection between the two is pretty much their classification.

      Due to a myriad of circumstances the market , governments , central banks , and the commex were able to collectively tie the two together. It’s quite a brilliant scheme , quite frankly !

      But hey ! It kept the dollar floatin along all these years , decades in fact. On the other hand this allowed for more debt…allot more debt.

      If you really want to get a handle on the history of silver check out Charles Savoie’s work . It is lengthy and well defined.

      What it really boils down to is that the owners of the U.S. dollar cannot compete their currency with that of physical gold and silver. In truth the physical will crush their paper control so there is a overall giant manipulation contending that takes place every minute of the day.

      It will be interesting to see what comes of China’s move to release information on the amount of gold that
      they are presently holding , this September. The results could be earth shattering regarding world economies.
      Stack if you lack !!

  22. Above in an earlier comment:

    RD says:
    May 29, 2015 at 11:50 am

    David

    You can have 25 years geology background or 25 minutes, it does not matter. Only wall street decide the value of everything on else. period.

    BRICS still refuse to strike back…

    I agree that China, India, and Russia, the three biggest powerhouses of BRICS, won’t demand physical delivery on the COMEX that would cause a default of the COMEX. When the COMEX crashes the dollar crashes, then virtually all of the world’s currencies crash as they are also fiat currencies.

    Russia, India, and China will continue to buy physical gold and silver of course. The evidence of that is unquestionable. And they will buy a lot more if the price goes down, that has been demonstrated also. That can and will lead to shortages of gold and/or silver in the future that can indirectly lead to break in the price discovery mechanism currently controlled by the COMEX. The COMEX may not default, but it would be made irrelevant. One of the two will happen. Silver is a small market that is easy to manipulate because of that, and because TPTB allow it. But the sovereign, central bank, and ultra-wealty’s appetite for gold is huge and increasing. Silver’s price has followed gold’s price about 90% of the time. The investor demand of one PM or the other will lead the others out of the COMEX price suppression slavery.

    “Only wall street decide the value of everything on else. period.”

    For now that is true. It won’t be ad infinitum.

  23. Bo Polny guaranteed gold was going to $2000 /oz before the end of last year. He was miserably off and he’s full of crap

    • Silverwillwin | May 30, 2015 at 9:37 am |

      Timing regarding prices of the physical is an almost impossible act to pull off , for anyone.
      The complexity involved regarding world events , various markets , uber greed , kicking the can , physical and paper being tied together , etc. makes it virtually impossible.
      Properties for both physical gold and silver are a passive one ( there are no institutions who are aggressively leading physical to stand on its own at present .
      Although this is subject to change rapidly ;
      Due to the fact that China has come to realize that the U.S. is no longer a healthy customer of its exports , they are organizing a new silk road with a lineup of many new customers throughout the rest of the world. This new strength along with the announcement of a very strong gold backed yuan could only lend itself for some interesting times ahead regarding over liquidity of the U.S’s treasury notes / bonds.
      Whoa to those who are ill prepared .

  24. Bill hi ho silver | May 30, 2015 at 11:26 am |

    Beat them>>>> buy in equal increments all the way down to zero and you will win when it turns around

  25. Bo Polny has lost all credibility for me, last year he was saying Gold will not go below something like $1,185, when it did go below that level, he countered by saying: “it was an overzealous statement”, then I listened to a podcast where he called gold will be $2,000 100% by the end of 2014 and that was about 3 weeks before the end of 2014, LOL, then he started changing his narrative again, by saying gold will be $2,000 shortly into 2015…..

    Steve, please don’t quote your disillusioned friend anymore, it looks like he is trying to hype up the “gold and silver skyrocketing” several times a year to sell his misguided guides, anyone hanging out in the Polny’s camp are themselves losing credibility.

  26. Silver Savior | May 31, 2015 at 8:37 pm |

    All of this is quite meaningless to me. I will not sell any silver for anything less than $1000 an ounce and that is only if I really want the junky paper dollar at the time. I am getting to where silver is the actual money and the dollar some forgotten relic no one wants.

  27. Lucky Cogito | May 31, 2015 at 10:19 pm |

    Those who believe everything is going to be just fine with those leveraged markets, well good luck to you. Those who believe we are not on the right track, then there is only one solution, buy gold and silver. End of story. Stop looking at the technical stuff because on temporary basis, THEY can do a lot more than you think. So my best advice is to stick with the main picture. Of course there are those who say gold and silver wont matter, just need water food shelter etc.. but those will stay average citizen in the aftermath crisis. If you think its the end of the world then everybody is right 🙂 but I prefer betting that there will be a new system and those who will have gold and silver will change their lives and the lives of their children forever. Again I repeat myself 🙂 STICK with the MAIN picture and you wont fail.

  28. Have to say I have been hearing over and over and over again about how silver is going to explode to the upside. Chances are it will drop more and really make all of us cuss and sweat before going higher. As much as i would love to see if go up, it isn’t going anywhere until the paper system changes or falls apart. We could be waiting for a while yet.

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