It is a well-known rule that gold and silver prices go in tandem. However, the patterns delivered by gold / silver futures markets show a large divergence. And although I hate stating that this time something is different (at the end of the day such a "brave" thesis is, in most cases, false), it really looks like this time the gold and silver markets are different. In this article I am trying to explain this thesis.
Let me start with the Commitments of Traders reports (COT reports).
COT reports
The charts below show the total open interest attributable to gold and silver futures:
Source: Simple Digressions and the COT reports
Note that now the amount of contracts available in the game called "silver futures" is very close to its record (the circle marked in red). This record was set in early August 2016 when as many as 225 thousand contracts were in the game. According to the last COT report (dated February 21, 2017), the total open interest in silver futures was standing at 208 thousand contracts (7.6% below the record level).
On the other hand, now the total open interest in gold futures is very far from the record readings (look at the two green circles). In the beginning of July 2016 the total open interest in gold futures was standing at 633 thousand contracts (the highest in history). Now it stands at a mere 427 thousand contracts (32.5% below the record reading).
Simply put, the silver trade seems to be overcrowded again while its gold counterpart looks as if nobody is interested in it.
Interestingly, in the beginning of 2009 the investors could spot a similar pattern:
Source: Simple Digressions and the COT reports
At that time:
- The open interest in silver futures was standing at its highest
