Silver has Further to Fall

Andy Waldock |

We've been bearish on on gold, platinum, copper and silver the entire fall. So far, so good. However, as we approach the lows for the year in these markets, it seems a prudent time to evaluate our positions, specifically, the silver futures market.

Looking at the chart below, you can clearly see that the commercial hedgers in the futures market have done a great job of calling the swings in this market this year with nearly every signal providing a profitable opportunity. We've stated over and over again that commercial traders are value traders. They buy the market below value and sell the market above value. The only difference is whether they're producers or, consumers in the physical silver market.



That being said, their recent actions are exceptionally bearish. Commercial silver producers are now willing to sell their forward production at prices that, just this past July represented a major buying opportunity for the commercial end users. Consider that they bought more than 50,000 contracts between June and July at essentially, the same prices we're currently trading. Now that the market has fallen again, their actions show that not only have end line consumers stopped their bidding at these levels but even worse, the forward producers are willing sellers as we near the year's lows at $13.95. They've now sold more than 48,000 since the end of September.

Silver producers have become willing sellers at the year's lows.
Silver producers have become willing sellers at the year's lows.

Overall, this pattern should see the see the silver market ratchet down perhaps another $2 per oz. Once the year's lows are broken the commercial end users who've been stuck with now, over valued inventory will also join in on the sell side. This will cause the previous lows at $13.95 per oz to become resistance, further capping any potential near-term rallies.

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