COT, Bart Chilton: Bullish on Silver

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The structural changes that have taken place over the last 9 weeks remain intact and will likely resume after some of the 4 & 8 largest can add long and/or spread positions in order to minimize future losses. Judging by the way the way this has played out over the last eight or nine weeks, I would suspect this same trend to continue, which goes along with higher silver prices.

Referring to the chart below, the gross short position continues to decline albeit at a very slow rate while the gross long position also declined at an even slow pace, thus the unadjusted Net Position decreased nearly 1,000 contracts or approximately 5,000,000 ounces (each contract represent 5,000 ounces). Before adjusting for both non commercial and commercial spread position, the four largest commercial banks net short position decreased by nearly 2,000 contracts or 2.70%. But of course, we need these adjustments so our perception of the report remains real and consistent. Non commercials spreads increased rather dramatically, increasing net open interest by nearly 3.5%. Making the final adjustments for commercial spreading and real net open interest, the top 4 and 8 largest currently account for 53.04%(decrease of 3.49% week over week) and 70.77% ( decrease of 4.43% w/w). We have finally seen the commercial net short position drop below 30% of total world bullion inventory held net short (using the upper range of estimates 1b oz).

(Click chart to enlarge)

cot update

What’s most encouraging is recognition of this highly concentrated short position by Bart Chilton of the CFTC,"Even earlier this year, one trader held over 40 percent of the silver market" (Bart Chilton, 12/08/10). This, coupled with the structural changes remaining intact, have led me to increase my 4-6 month price target on Silver between $36-$38/oz.

Silver Price Monday December 13th, 6:30am P.S.T - $29.51/oz

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.