We continue our Silver discussion and highlight the chart since November 15, where Silver had reached a high of $25.52/oz. Fast forward 18 days later, we have extended the selloff to a low of $21.81, leaving just the September 29 low of $21.46 as your next significant support. If you recall, on September 29, Fed Chairman Powell stated, if inflation becomes a concern, they will begin to taper. These types of events often act as capitulation points in the markets. I believe we are approaching another critical inflection point on the charts that will lead to another aggressive short-covering squeeze.
One of the main reports that I encourage you to follow is the CFTC Commitments of trader reports. The report helps the public understand market dynamics. Specifically, the COT reports provide a breakdown of each Tuesday's open interest for futures and options on futures markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. Since the latest peak on November 15, I have noticed that producer shorts had reached -45,639 contracts adding 1,940 more shorts, and managed money net longs were at 35,870, up 8,407 contracts. What you will see is that as prices rise, mining companies often use those rallies to forward hedge production while investors chase higher. Fast forward 18 days to today, both managed money net longs, and producer net shorts have declined significantly. The data tells you that anyone who tried to buy the "breakout" most likely threw in the towel while mining operations have reduced their net shorts, most likely seeing little value in forward hedging at these price levels.