Money Managers Making Case for Higher Silver Prices
If you are looking for the next big trade, pay close attention to silver prices. The gray precious metal could be setting up to reward investors immensely in 2018 and beyond. As bold as this may sound, silver could be the next millionaire maker.
Understand that there’s currently a significant amount of negativity toward the precious metal. As a contrarian trade, it could be worth a look.
To get some perspective on how badly silver is unwanted, look at the Commodity Futures Trading Commission’s “Commitments of Traders” (COT) report, which is released on a weekly basis. More specifically, there’s a section that states how much exposure money managers have to silver. It’s labeled “managed money.”
As of February 27, managed money owned (long) 36,647 silver futures contracts. At the beginning of 2018, they owned 54,304 silver futures contracts. In the matter of two months, their bullish bets declined by over 32%. (Source: “Commitments of Traders,” U.S. Commodity Futures Trading Commission, last accessed March 7, 2018.)
Remember that one futures contract represents 5,000 ounces of silver. So money managers have exposure to 183.2 million ounces of silver now, compared to 271.5 million ounces at the beginning of the year.
Their bearish bets on silver (short) amounted to 53,082 futures contracts on February 27. On January 2, this figure was 38,501.
Simple math: money managers are short on 265.4 million ounces of silver now, versus 192.5 million at the beginning of 2018. This means their short exposure has increased by close to 38% in two months.
While these numbers may not mean much to the naked eye, it’s critical to watch.
Money managers are net short on silver. This means they don’t like the precious metal and think that silver prices aren’t going higher. They are net short on 16,435 contracts, or 82.17 million ounces. Money managers have never been this short on silver in history, according to the COT report.
Silver Market Getting Fundamentally Stronger
Now let’s move away from the topic of money managers turning bearish.
You see, too many short positions in the silver market could cause silver prices to drop initially. But don’t forget that the fundamentals of the silver market are looking amazing, to say the least.
We have a new buyer emerging, India, and no one seems to be talking about it. In January, the country imported 259.4 million worth of silver; a year earlier, this amount was just 196.0 million. This represents an increase of almost 32.4% year-over-year. (Source: “Quick Estimates For Selected Major Commodities For January 2018,” India Ministry of Commerce and Industry, last accessed March 7, 2018.)
In the same period, when silver imports increased 32.4%, gold imports to the country declined 22%.
As this is happening, we are seeing the supply side struggling severely. In the next few years, if nothing is done, silver production could be facing a lot of headwinds.
Silver Prices Outlook: Precious Metal Could Skyrocket
Dear reader, with all this in mind, it’s very hard not to be bullish on silver prices.
I truly believe that the more bearish these money managers get, the bigger the move to the upside could be on silver prices. Remember, we have a classic economic problem in the silver market: demand increasing and supply dwindling. This is a perfect recipe for higher prices.
If silver prices move higher, the money managers could be forced to sell their positions, and this could be very positive for the gray precious metal. To close short positions, you essentially need to buy, so this buying could send the price much higher.
In the meantime, it’s important to pay close attention to silver mining companies. If silver prices make a big move to the upside, miners could generate immense returns. Their stocks are currently selling for pennies on the dollar.