The bias in silver prices has largely been formed on in depth analysis of the gold market with in mind that while the magnitude of price movement between the two metals varies, the general direction (correlation) does not. For in depth analysis on gold pertaining to this article, please see “Gold Setting the Stage for “Lift-off” Post-FOMC”

Silver prices continue to probe multi-year lows ahead of what is expected to be the first rate increase by the Fed since the last tightening cycle from 2004 – 2006. Market positioning/technical combination plus key fundamental event could soon lead to a major move in precious metals.

Futures markets show extreme change in market positioning

In recent weeks in gold futures, via the Commitment of Traders (COT) reports, we saw large speculators (hedge funds) liquidate their long positions at a furious pace, nearly bringing their net position to flat for the first time since 2001. Commercial traders (hedgers) covered their short hedges at an equally impressive rate, bringing their net position near the zero-line as well.

The COT reports for silver futures also showed a similarly impressive rate of change in positioning (unsurprisingly), but did not see the two opposing sides bring their net positions as close to the zero-line as witnessed in the gold market. From an analytical standpoint the move in gold positioning was ‘meatier’, but the race to square up positions in both markets indicates an inflection point and on several occasions in the past has acted as a timely indicator looking out over the next several weeks or longer.

Silver COTs Weekly: 2013 – Present

Silver Prices On a Collision Course With the Fed

Technical support at hand

From a pure technical standpoint, silver like gold is also trading at a bottom-side trend-line, but in the case of silver it also constitutes the bottom-side of a potentially explosive descending wedge dating back to 2013. The lower line of support coupled with the extreme movement in positioning among traders creates an environment seen at critical inflection points.

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