Ed Steer Commentary On Silver Price Action For 2011-04-15

Silver's net volume was around 90,000 contracts...and the preliminary open interest number was a very chunky 7,729 contracts. Silver's rally is not going unopposed, either. There's little, if any, signs of short covering going on at the moment. JPMorgan et al are going short against all comers. Without doubt, silver's o.i. number [along with gold's] will be lower when the final numbers are posted at the CME's website later this morning...but it doesn't really matter, because I already know that they're going to ugly no matter what.

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The backwardation issue in silver is basically unchanged. The spread between the April 2011 delivery month...and the December 2015 delivery month currently sits at 41 cents.

Well, based on yesterday's price action, the silver shorts will get another margin call this morning...and at US$5,000/contract, it doesn't take long for this to add up to real money. As of the last Commitment of Traders report, there were 143,000 silver contracts held short. Now some of these are spreads, so they don't count...but even if you be generous and take out 53,000 contracts worth of spreads [long one month/short another]...you're still left with 90,000 contracts held naked short. Every time the silver price rises a dollar...the margin calls go out at $5,000/contract. So some of these shorts must be screaming in pain...because they have to cough up real cash to put in the longs' margin accounts.

How long the silver shorts can keep on bleeding cash like this is something that Ted Butler spends a lot of time thinking about. When the shorts finally head for the hills [and it won't take many of them to do it] then you'll see it in the price action immediately. But, so far, there's no sign of it, as this rally has been very orderly to the upside. The day it becomes disorderly, will be the day when you see some of these shorts covering their positions.