A Mess of Silver Futures

[mexican silver round]

The short concentration in silver futures contracts is unprecedented. Most of you find out early on that the futures market is a mutation of free markets.

Given the well-documented lack of silver supply in relation to silver futures and growing public awareness, there is danger of implosion if short-covering begins. This type of activity could shut down the paper market for silver, causing a panic throughout the system.

It is the disconnect in price between futures and physical silver that is perhaps the most significant reason that you should at least buy a small number of silver coins.

Silver Short Position

For a more comprehensive overview, I will refer you to Ted Butler: View Ted Butler’s archives here.

Butler may be more responsible than anyone else for why we are discussing investing in silver to begin with. His commentary on the justification for silver investment is down to earth, easy to read, and yet challenges the newcomer to learn. In short, Butler tells us this:

Silver traders illegally buy rights to own silver (5000 ounces per contract) without actual metal backing. A very few entities put large amounts of money into short contracts.

This has the effect of lowering the thresholds set-up by outside investors. The price stays low and the shorts continue their hedge. By the way, this description happens to summarize the greater fiat monetary system.

Silver has the largest short concentration of any other commodity. This has been created in large part by a dwindling supply, and also perhaps, in small part, by a reaction to the Hunt Brothers debacle.

When growing interest in silver investing forces shorts to buy back positions, the change in silver priceswill be chaotic.

The Silver Futures Separation

When you compare the price of silver futures to buying some unit of silver in the real world, you find a significant disconnect. This growing percentage will likely spread, rendering the paper market meaningless.

(Recent developments at the CFTC threaten to impact current silver prices even further).

A collapse of the paper market, though, may be the only hope for an orderly return to normal silver prices—those that are based on supply and demand and the monetary significance of silver. Some have thought of this point as where the inevitable reversion back to metal-backed currency begins. We could be now experiencing the calm before the storm.

I began this quest committed to investing in silver coins only, for their safety, liquidity (both ways), and storage advantage. But silver coins are becoming harder to find.

We may have reached the point where some silver coins, eagles mostly, are becoming scarce. The price rise has begun and, as in all bull market scenarios, the race commences long before the herd catches on.

Find a local coin dealer, and convert some dollars into silver rounds or 90% junk silver. It doesn't matter how much. It should be what you can afford and can buy outright.

Read about the impact of covering naked short positions in precious metals in any meaningful way here

Read about the threat of default and the real precious metal achilles heel.

The real value of the Commitment of Traders or COT Report for silver traders lies in revealing the marked concentration of short silver futures

More on the Basics of Silver Investing

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