Market Curiosity: Exploring Markets And Systems

February 20, 2011

Silver’s current focal point: March silver’s open interest

Filed under: Just Watching — Jeff Fitzmyers @ 9:55 pm

This is better than a good spy novel! Powerful price action is afoot. “Nothing, but nothing, moves like silver”.

I only recently understand what Mr. Ferguson was getting at here:

And now, at this late hour [first notice day is Feb 28th], how can you reduce the open interest in the March contract if you’re only selling new paper shorts to resolute longs who intend to stand for delivery in eight days? By raiding and selling, you’re only compounding your problem because you are creating more open interest! If you’re Blythe, you’re left with only being able to freely sell the forward contracts in an attempt to influence the spot and nearby price. Does this explain the current backwardation? Probably.

In other words, if I have it right, since selling is not reducing the front month open interest, there will have to be buying or delivery. And buying would drive the price up more.

There are less than 42,000,000 oz of silver available for delivery at the COMEX. As of Thursday, there are currently 53,000 contracts of March open interest. It would only take 8,400 contracts to take delivery of all registered silver. One entity can have a max of 1,500 front month contracts. Typically the open interest drops to rather low numbers as contracts are simply rolled forward. Apparently that is not happening this time time.

It is common knowledge that those wanting delivery can supposedly be paid a premium of 20% to take FRN’s instead of silver. What a deal! 20% of $160,000 is $32,000 and margin is say $12,000. So every month or two, one can either choose to take delivery or get paid $32,000 / contract to wait a month. In a way, and taking into account some downside risk, that’s like making maybe 200% on your money every few months.

Note the down trend in available silver for delivery.

Further education:
+ What is a Commercial Signal Failure (Except silver has no price limits.)

Just a quiet night during a 3 day weekend… If so, why does gold and silver have larger bids near recent highs???

And look at the big asks an hour later. Only took silver 1 minute to chew through the 100 solid asks at 33.11. 33.12 has held so far.

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