Just a month ago, the COMEX silver price was rising, despite mixed economic news and proclamations that the economy was improving. At that time, the commercial positions in silver on COMEX were short 58,000 contracts or 79% of all short positions held (5/8/09). While small and large speculators reduced their short positions since then, the commercial positions ramped up their short stakes to 73,400 contracts or 84.4% of all short positions in the market (6/12/09).
Not surprisingly, the price of silver is finally succumbing to the overwhelming shorts as the short ratio expand. The magnitude of the short position is best understood by multiplying the short position by 5,000 to see that the commercial positions are now short more than 367 million ounces of silver. That is nearly 54% of the yearly mined supply of silver (680 moz in 2008).
Much of this short silver position is held by two US banks, one of which has been identified as JPMorgan, who inherited the Bear Stearns short position when it took over that bank (see Ted Morgan, SilverSeek.com). As of June 2009, the Bank Commitment of Traders indicated the two US banks held 27,500 short contracts out of a total of 69,000 short positions of commercial traders (short positions were on 6/5/09). While these two US banks were short 27,500 contracts, they were long on just 25 contracts.
As a comparison, there were 12 non-US banks with positions in silver in the same report. These 12 banks have a combined short position of just 4,000 contracts, and are long on almost 9,300 contracts.
Given that the commercial positions are the top 8 traders in the market, the two US banks make up 37% of the short position and just three one hundreths of a percent of the long position.
The rapid increase in the short position has allowed the shorts to place downward pressure on the silver price by selling enough paper positions to exceed the price of silver. They last accomplished this in February of 2009 when short positions reached 71,000 contracts and the price of silver was hovering around 14 dollars an ounce. The steady increase in commercial short positions since 4/24/09 has mirrored a rise in the silver price from around 12 to 15 dollars, but remained below levels needed to stop the rise.
