The relatively slow progress of silver prices has been a puzzle to us for some time, could the reason lie in the Comex where an unprecedented concentrated short positions in the Comex silver futures exists.

Courtesy of the Johannesburg Business Day who alerted to a piece carried by Finfacts.com where Theodore Butler had this to say:

“If there is one thing that separates silver from any other asset class, or any other item in any asset class, it is the presence of an unprecedented concentrated short position in Comex silver futures. It is the existence of this concentrated short position that will, at some point, launch the silver price to the heavens. This short position has grown so large, and is held by so few entities, that it no longer matters how it will be resolved. It must be resolved and, whether that resolution involves default or buying by short covering, it will have the same bullish impact on price. You don’t have to look any further than the concentrated Comex short position as to why silver has not outperformed every other commodity. Just as it explains price underperformance, it is telling you why there must be over performance in the future. At some point, the price of silver must accelerate upward to price levels that are truly shocking.”

The silver futures market or indeed any futures market is dangerous game to play. The lure of leverage offers the possibility of massive profits if you can time it right however if you time it incorrectly then the result can be devastating for those exposed to this form of derivative investment. Other than the odd spread bet this is not something that we dabble in but it does have an effect on our silver stocks investment account and therefore cannot be ignored.

Going short is the opposite from buying silver. You are selling silver today in the hope that you can buy it back later on at a cheaper price in order to close the trade. The important thing to remember is that you do not own the silver and you are obligated to buy that amount of silver in order to close the trade. So the outstanding short positions are in effect future buy orders that are yet to be placed.

Should these positions be closed quickly we could see an extraordinary spike in silver futures along with spikes in daily silver quotes.

This is a small thinly traded market so it wont take much to move it. Also bear in mind that these short positions have be closed out by the date stipulated on the contract so it is now a race against time.

As this point it feels good to be holders of silver stocks as we are under no time pressures. The deadlines for these contracts are not marching towards us, but those who hold these short positions, so there must be a few traders sweating a little today.

Stay tuned as this tiny market sector is warming up!