An epic short squeeze is imminent for precious metals
COT data for gold is truly stunning. Gold-futures speculators held the short side of an astounding 178.9k contracts! This is at least a 12.3-year high, the most-extreme gold-futures spec short position by far in gold's entire secular bull.
The sheer size of this bearish bet is breathtaking. Each COMEX gold contract controls 100 troy ounces of the yellow metal. So American futures speculators have borrowed and sold 17.9m ounces, or 556.4 metric tons! That even dwarfs the also-outlying record selloff in the holdings of the flagship GLD gold ETF over the past 7 months, which now weighs in at 417.3t. This epic gold short is wildly unprecedented.
Hedge funds have been significantly increasing their short position in silver futures since the beginning of February. This past week the short position in silver for large speculators (i.e. hedge funds and managed futures funds) reached a record of 31,806 contracts. Please note that I am referring to the number of futures contracts shorted. On a net basis, the hedge funds are still slightly long. Since each contract represents 5,000 ounces of silver, the short position is about 159 million ounces. Let's put this in perspective.
At the beginning of February, the hedge funds had a short position of 6,588 contracts (about 33 million ounces). This was the lowest number since 2010. Hedge funds have increased their short position by almost 5x since then.
Mine supply of silver in 2012 was 787 million ounces, according to the Silver Institute. The short position is thus 20% of annual mine supply.
The largest silver ETF (SLV) has about 321 million ounces of silver in its inventory. So the hedge fund short position in the futures market is almost 50% of SLV's inventory.
Implication For Investors