Sunday, June 28, 2015

Silver - Extremely Interesting Situation

In my opinion, silver is ready to surprise many market players.

Firstly, the open interest at silver futures is standing at its multi-year highs. Please, look at the chart below:

Such a high open interest means that the record amount of market players is betting on silver prices.
As usually, some bet on silver appreciation and some bet on silver continuing its downtrend.

Who is betting on another drop in prices? Look at the chart below:

The chart shows positions held by the so-called Managed Money - mostly hedge funds. This group of market players is traditionally betting on lower silver prices. This time their short position is standing at the highest level since the beginning of 2010. Every time their bets were at highest levels, silver prices were reversing their downtrend.

These days we see the similar situation. But this time the pattern is even stronger - not only Managed Money holds the highest short position ever but the open interest is at its highest level as well.

In my opinion in the coming weeks we could witness a very large move up in the silver prices.

Last but not least. I am not a fanatic believer of a technical analysis, especially its indicators, but sometimes it is worth looking at some of them. The chart below shows the so-called MACD indicator, one of the most popular trend following indicators:

As the chart shows, in the first quarter 2015 the monthly MACD printed a BUY signal. It is a very rare signal therefore its meaning is relatively strong. Additionally, a ratio "gold prices : silver prices" is standing at its highest level, comparable to 2003  and 2008, which indicates the incoming end of a bear market in silver prices.

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