Ed Steer: Gold Shares Rallying; Concentrated Gold/Silver Shorts Continue To Decline

Although bullion was down $19 on the week, the HUI rallied 8.0%...and is now down only 14.2% year-to-date. That's amazing! As I've been saying all week, strong hands have been buying gold shares since the low of ten days ago and, despite what the gold price itself has been doing, the HUI has been up seven days out of the last eight. It appears that someone with very deep pockets knows something we don't.

... the Commitment of Traders Report turned out to be a bit of a surprise yesterday, so I'm glad that I reserved the right to be wrong when I spoke about it in yesterday's column. Instead of deterioration...and an increase in the Commercial net short position...there was actually a small decline in both silver and gold.

In silver, the Commercial net short position declined by 686 contracts, which brings the Commercial net short position down to 15,222 contracts, or 76.1 million ounces. The 4 largest traders holding short positions in the Comex futures market in silver are short 133.5 million ounces...and the '5 through 8' are short an additional 44.3 million ounces.

On a net basis, the 4 largest short holders in Comex silver futures are short 28.8% percent of the entire silver market...and that's a minimum number. The '5 through 8' short holders add another 9.6 percentage points to that. Eight traders are short 38.4% of the silver market...against hundreds, if not thousands of other contract holders. This isn't rocket science, dear reader. It's the current COT Report plus Grade 3 arithmetic.

In gold, the Commercial net short position declined by a further 3,319 contracts...and is now down to 13.56 million ounces. The four largest traders/bullion banks are short 9.93 million ounces...and the '5 through 8' traders are short an additional 4.79 million ounces.

The 8 largest traders in gold are short 108.6% of the Commercial net short position in gold...and in silver, the 8 largest traders are short 233.6% of the Commercial net short position in silver. Compared to silver, gold is a free market.

This is why the CME has now been designated as 'too big to fail'. The taxpayer will be on the hook when there is a default in the Comex silver and gold futures market.