Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Silver Open Interest Anomaly

Commodities / Gold and Silver 2014 Dec 02, 2014 - 06:17 PM GMT

By: DeviantInvestor

Commodities

Each week the CFTC publishes data from futures and options contracts for many commodities.  Open interest shows the number of open contracts – one long for each short – in a particular commodity, say silver.

Usually price direction is consistent with open interest trend.

See the 14 year graph of open interest and prices in the silver market.  Prices are shown on a log scale with silver prices in black, while open interest (per CFTC) is shown on the left in red.


Note the similarity in the trends for open interest and prices from January 2001 through the end of 2011.

To more clearly analyze these trends, use a moving average for price and open interest to smooth the graphs.  Now graph price and open interest (below) from January 2001 to December 2011.  Excel calculated the statistical correlation at +0.56.

Now graph price and open interest (below) from December 2011 through November 2014.  It looks rather different.  Excel calculated the statistical correlation at – 0.59.  Generally speaking, the correlation between open interest and price reversed at the open interest low on 12/06/2011, which was quite close to the weekly price low at 12/30/2011.

What changed?  I don’t know, but some possibilities are:

  1. A large buyer has aggressively added to futures contracts in the last several years and has remained long instead of selling and accepting losses as prices dropped.
  2. There was clear recognition that massive debt, bond monetization, QE, and “Operation Twist” would eventually devalue all currencies so consequently “big money” began moving into silver futures as an alternative.
  3. Germany requested the return (a few months later) of her gold from the NY Federal Reserve which encouraged insiders to buy silver futures.
  4. High Frequency Trading and market manipulation which attempted to suppress the prices for gold and silver, levitate the S&P, and sell the “economic recovery” story caused the anomaly.
  5. Something else.

Bill Holter has speculated that the Chinese, or their agents, have been buying silver contracts even as prices declined, in contrast to normal “trader” behavior.

If you have a good theory for what appears to be a clear anomaly, then please respond with a comment.  In the meantime it looks like strange market behavior – perhaps one more example of the dominance of High Frequency Trading over human decision making.

Thought:  Open interest is roughly 175,000 contracts, which is about 875,000,000 ounces of paper silver.  At market price that is about $13 Billion, or only about 15% of what the Fed created each month during QE3.  It would take very little digital currency, relatively speaking, to buy all the open interest, or to crush prices via naked sales of paper contracts.  Stacks of physical silver are much safer and far more “real.”

GE Christenson aka Deviant Investor If you would like to be updated on new blog posts, please subscribe to my RSS Feed or e-mail

© 2014 Copyright Deviant Investor - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in