There is an intriguing situation developing in the silver market:
- Silver futures open interest has increased to nearly 220,000 contracts (nearly US$20 billion notional), within 6,000 contracts of last August’s peak
- Producers have moved to a larger short position (~US$6 billion notional) than at last summer’s highs while managed money remains at a lower net length than at last summer’s peak
- Silver continues to consolidate above its 200-day moving average just below the February high at $18.54
Head & shoulders bottom with breakout above ~$18.50 targeting $21+ – RSI consolidates in bullish territory as MFI is a bit overheated near 90.
- Silver mining equities have begun to outperform silver with a ~2.5% gain over the last two trading sessions while silver itself has been flat at $18.21/ounce.
Make no mistake high futures open interest and large producer short positions are characteristic of bull markets, however, when futures positioning reaches extremes it can also often coincide with short term market tops/bottoms. The current situation in silver is especially intriguing because if futures positioning were a bit more ‘modest’ (lower open interest with less net speculative length) I would view this as a very bullish setup for silver. As it is I still find myself leaning bullish while preferring silver mining shares such as First Majestic (NYSE: AG) and Silver Standard (TSX:SSO) over the metal itself.
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