Gold and silver markets have finally reverted to their normal behavior as the CME has announced additional margin increases and commercial shorts have increased their buying on the downside. This is good news because the federal government and banks are financing excellent opportunities for investors that are paying attention.
At first glance it seems that the commercial traders are the best on the street as they have reduced their net short positions to 50,000 contracts in silver - about 25 percent of their peak short position two months ago. Indeed this is impressive. However a bigger picture view shows that the net commercial short position has fallen to levels seen in late July. During that time, silver has risen from $18 to $25 created an estimated loss of $1.75 billion for the commercial shorts and an equivalent gain for counterparty long investors. While these traders can be commended for their tactics, their strategy of thrashing has proven to be pointless.
On the other side of the trade, bulls have won on multiple points. The recent correction has unwound sentiment and overbought technical indicators, yet gold and silver remain much higher than they were even two months ago. In addition, those wishing to buy more have been given another chance. It is much easier to accumulate profitable positions during corrections rather than while chasing prices higher. Silver could easily correct to or even its breakout level of before resuming higher. Gold could correct to 20 or its breakout level of 60 before resuming higher.
Traders that follow the actions of banks and governments rather than words and positions can see pristinely clear opportunities. Over the last two months, the Federal Reserve has begun to monetize treasury debt, and banks have increased their efforts to consistently buy as much gold and silver as they can. Nothing could be more bullish.
