It would seem that every fund manager on the planet has decided to roll the dice on higher silver prices. The long side bets on higher silver prices just scored AN ALL TIME HIGH among hedge fund managers.

Take a look at this breathtaking chart. It has moved beyond mind-boggling.

silver hedge funds

Hedge funds now have the dubious distinction of having amassed the largest long position in silver’s history!

Opposing them is the Commercial and Swap Dealer categories who between them both now have the largest SHORT POSITION in history.

silver commerc

How about when measured in percentage terms? How does the hedge fund long position look from that perspective? As you can see, it is a smidgeon away from the former old time high in early 2007. No matter how you measure it, the positioning of the hedge funds in this market is so lopsidedly long that it will not take much to upset it should the waves start roaring and rocking the silver ship.

silver percentage

Here is the conventional view that we are accustomed to viewing. As you can see, it is breathtaking for its imbalance.

silver overall

On the actual price chart, you can see what all this speculative buying has done to the metal.

Chart_16-04-15_13-57-56

It has managed to take it from below $14 to its current price just below $16.50, a key overhead resistance level.

Additionally, it has created what technicians refer to as a “Golden Cross” which occurs when the 50 day moving average crosses from down below the 200 day moving average and rises above it. That took place late last month.

For all this buying, the metal still remains in a longer term trading range with that $16.50 level just mentioned the top of this range that has been in place since June of last year.

I have no way of knowing when or even IF, these hedge fund longs are going to bail out. As long as key downside technical support levels remain intact they have no particular reason to get out of profitable positions. I go back to the same thing I have been saying about silver for some time now – I really do not get the infatuation of the hedge fund community with this metal. All I can say is that silver has always had a well-deserved reputation as being the “PLAY THING OF THE FUNDS”. It is certainly living up to that!

Maybe it will break out to the upside soon. Maybe not. If it does do the former, the hedge fund long position will merely get more and more precarious. As for me personally, I am more than willing to sit this one out even if it costs me an opportunity to make some money on the long side. I want no part of a market this imbalanced and am simply not willing to risk my trading account by being on the long side of an accident waiting to happen.

As for others, as long as one is very quick, and can get to the exits in the event we do start to see any downside technical support levels give way, help yourself to trading it from the long side, but for heaven’s sake, DO NOT GET CARELESS OR COMPLACENT WITH THIS METAL. It can break your heart in a hurry not to mention wipe out your trading account.

By the way, I have mentioned the connection between silver and soybeans often in the past. It is an old relation that some of us old time traders are familiar with. Many times we see a buying binge in the beans being accompanied by rising silver prices. It is all about hot spec money chasing a market higher, oftentimes apart from underlying fundamentals. Beans have gone on a tear higher of late based solely on wet Argentinian weather and high-powered specs betting on a drought this year induced by the transition of El Nino to La Nina. Traders are betting on a weather forecast for the summer!

Might as well roll the dice since you will either be a hero or a zero depending on that forecast. All I can say is that we better see a drought at this point or the beans are going to be in a world of hurt.

Comments (3)

Alex – I agree with you about both the Dollar and the Euro… I for one believe that the Euro should be closer to par with the Dollar but the rest of the market could care less what I think!

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