When an option trader has a long gamma position it means that they benefit from volatility and can rebalance their portfolios’ profitably if the underlying asset moves significantly.
The more volatile the precious metals becomes, especially to the downside, the more buying interest emerges.
To the upside, the threat of a short covering panic is still very tangible, and therefore both metals remain cheap (physical) options to hold.
COT Structure Set Up is Dangerous for Threat of Default
There does not even have to be an actual default, but the threat of one is enough to further undermine confidence in the precious metals market.
Furthermore, the entire fiat currency experience has been allowed to continue with the covert as well as overt suppression of precious metal prices and the price of other key commodities by using the futures market.
Since the seller of a futures contract is not forced to make physical delivery, a government agency selling futures can use printed paper money to net cash settle any losses that might result from the sale of futures contracts to suppress the prices of physical commodities artificially.
As long as the growth or expansion of credit resulted in nominal highs, and bail outs were enabled to keep the consumer "solvent" and "distracted", the fiat based financial system could go on.
It seems that the greatest market volatility has yet to come.
Silver Price Manipulation and the Taper Caper
If the Fed does not taper its money printing program that it calls “quantitative easing”, then the risk of monetizing too much of the budget deficit may significantly increase the likelihood a crisis in confidence.
One signal would be interest rates moving higher, requiring the Fed to buy more bonds, adding fuel to the fire of 'over-monetization'. Of course, all of this buying and spending fuels money velocity in the U.S. economy.
If the authorities eventually allow gold and silver prices go to their natural levels based on underlying supply and demand, then the same thing could occur. People would figure it out very quickly and will re-remember the value of real money, as Gresham's law kicks in.
"Provide for the worst; the best can take care of itself".
Unfortunately, most people do exactly the opposite. They provide for the best and HOPE the worst will take care of itself.
People are generally averse to small losses, but they tend not to take into account very large black swan risks that can come as a surprise to them.
This applies very well to the average modern silver investor, given the worst case scenario as well as the good news commodity side for the white metal.