Dollar Shortage Vs. FX Swaps

Dollar shortages can be monitored by looking at FX swaps.

Silver Net Short Positions Lowest in a Decade

Today, as I navigated on GoldMoney's website, I learned a little bit about swaps and net short positions in silver. So I searched for keywords like swap and net short position and came to a very interesting website named Gotgoldreport.com. I wanted to summarize in short what I read there.

Apparently physical silver is headed higher and this can be deducted by the net long swaps, which are at their highest point from at least 2006 onwards. You can see that in September 2007, the silver price shot upwards from $US 13/ounce to $US 20/ounce when the swaps position declined. The same happened in 2009. Now the same will happen in 2012: when swaps (blue line) goes back down, you need to prepare yourself for a move upwards in the silver price.

Chart 1: Swap Dealer Net Position Silver

The second indicator is the net short position of the large commercials (LCNS) (Chart 2). Blue line is the LCNS, pink line is the silver price. There has never been so few net short positions in the commercial traders in a decade. And each time when there is a low in net short positions (September 2005, September 2007, October 2008 and now), the silver price would spike upwards with a delay of a few months. We haven't seen this spike upwards yet, because the net short positions are still declining, but once the blue chart reverses upwards, you can brace yourself for the biggest run upwards in silver ever.

Chart 2: Large Commercial Nets Short Position

Go to this site to get access to the long/short positions:

http://www.cftc.gov/OCE/WEB/data.htm

Here is the excel file: http://www.cftc.gov/OCE/WEB/Report%20Data/COT_Data.xls

I compiled the data myself by subtracting the long positions from the short positions and I came up with chart 3. This basically means that commercials were always net short silver throughout history. And this longer term Chart 3 also confirms that net short positions are the lowest in a decade.

Chart 3: Net Short Positions (LCNS)