Silver and Gold Short Positions on Comex
Open short silver positions on Comex among the largest traders would require 135 days worth of global silver production to cover.
Short Traders Most Likely Don’t Have the Silver to Cover Their Positions
Is Comex on the Verge of Default?
With the silver and gold prices plummetting, its time to revisit silver and gold short positions on Comex. The most recent weekly reading shows consistent elevated short silver and gold positions, concentrated among the bullion banks – Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorganChase, Merrill Lynch/Bank of America, Mitsui, Societe Generale, Bank of Nova Scotia and UBS.
These are the same banks that many suspect have a hand in gold and silver price manipulation.
The current silver short positions would require about 135 days of global mining production to cover- an amount that is not just sitting in one place, owned and allocated to the short sellers waiting to be delivered.
Because the short positions are so large it calls into question what happens if the short sellers can’t cover their positions. Many have been predicting for the better part of a decade that a Comex default was inevitable and in many cases imminent.
While a default is certainly possible, its not likely because Comex is not a place where people come to buy and sell silver and gold. Rather it’s a place to buy and sell silver and gold long and short contracts.
Comex is a place where people sell silver and gold they don’t have to people who don’t want to buy it.
Fractional Reserve Silver
This concept was not lost on Kyle Bass, who manages the University of Texas’ gold holdings. He explains that the open gold short interest far exceeds the amount of gold that the Comex has in its vaults. The same situation exists for silver. Recognizing this dynamic led Mr. Bass to take delivery of the gold he had purchased on behalf of the University of Texas.
Silver and Gold Supply and Demand
The price of silver and gold is based on the supply and demand of paper silver and gold contracts which can be created with no relation to the amount of actual silver or gold available to buy or sell.
The actual physical silver supply demand dynamic is one of deficit in which demand exceeds supply. This would lead to a rising, not falling price. Because, however, the paper market sets the price, silver has fallen steadily the past few years despite physical demand exceeding supply.
The chart below illustrates this:
Silver Supply & Demand Surplus/Deficit
The price of silver has declined despite increased demand falling supply relative to demand.
According to the following chart, the number of days of global silver mining production required to cover the aggregate silver short positions of the eight largest traders on COMEX is 135 days.
The chart shows that the other precious metals (gold, platinum and palladium) have similarly large open short positions.
Days of World Production Required To Cover Short Contracts – October 28 2014
The amount of silver required to cover open short positions is about 135 days of global silver mining production.