COT Report: All Bullish on the Silver Front

"Small but very telling structural changes continue in this week’s Commitment of Traders (COT) report, once again highlighted by another drop in adjusted Net open interest. Another telling line item is the net short position of the four largest commercial traders, dominated by JP Morgan, dropped 5.9% to a net short position of 39,647 from 42,167 contracts week/week.

The bullish factor here is not just the drop in the net short position but the concentration levels, which account for the change in adjusted net open interest, down 1.67% and currently at 51.21%. The eight largest commercials also had a significant drop in the net short position, illustrating that they didn’t take control of the short positions covered by JP Morgan and the other three largest commercial traders. Their net short position decreased 2,676 contracts in addition to their concentration levels contracting 1.34% to 70.63%."

Read the full article at: COT Report: All Bullish on the Silver Front

Note: The price of silver is determined in exchanges such as Comdex. In Comex a few large banks hold a disproportionally large amount of silver short positions (they sold silver they don't own and will be required to buy silver in the future to close their position).  

As the silver price increases these banks accumulate more and more losses on their short positions. Eventually these banks will be forced to close their short position debt by buying silver. This buying will drive the price of silver higher which in turn will cause more short positions losses for the remaining short owners. This will cause them to buy as well.

This process is called a "Short Squeeze" and it has the potential to cause silver prices to increase very quickly.