-- Posted 29 May, 2005 | |

We had a nice little rally in silver today and closed at $7.27, just slightly above the upper resistance. One close above the resistance does not signal a clear brake out but we could be close. Next week will tell us.

We have not seen any significant changes in the COT structure for silver. The commercial shorts and non-commercial longs stand at comparatively low levels which have preceded moves to the upside the past two years. The commercial longs are at their highest in almost two years.

The COT structure for gold has gotten better and better during May. From a COT perspective there doesn't seem to be much room to the downside for Gold at the moment, if you take the past two years as a guidline. This is the kind of COT structure that has preceded quite strong moves to the upside.

I would like to emphasize that this is only a look at the past and a look at COT structure. As I have said earlier, I believe that reading the COT numbers blindly and expecting the old patterns to repeat themselves over and over again will fail eventually. Look for changes in the market. 

I would also like to add that the COT numbers are not equally useful in every market IMO. I do not consider the commercials to be 'smart money' able to 'predict' price movements better than the 'dumb' non-commercials. I don't think that following the commercials is the way to prosper in every market. In some markets commercial are net long at times and net short at times and at times their bet is wrong and they cover when the market is moving against them. This has not been the case in silver. 

I believe the COT numbers are especially useful in silver for short term analysis since IMO the silver market is manipulated and to a significant part controlled by a handful of more or less coordinated commercials. The commercials don't 'predict' where the market goes. The market is so small that they practically control it and make the moves (to the downside) happen. 

The pressure for silver price is up and the commercials know this. The recent build up in commercial long positions and decrease in shorts might signal a shift to less aggressive manipulative moves to the downside (as opposed to mere normal market corrections after a rally). I dont think these sudden drops in silver are over but the day will come when the sudden moves to the upside will exceed the drops to the downside we have seen the past two years.

That day may not be here yet, but looking at the COT structure one has to bet that the following significant moves in gold and silver will be to the upside.