Speculators are exiting their long positions in the silver futures market. This should sound like music in the ears of long term oriented silver investors. This is why it’s bullish when speculators are giving up on silver.
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In this short post, we look at one of the leading indicators in our silver price analysis methodology. Detailed leading indicator analysis is provided on a weekly basis in our research service.
Speculators – you must love to hate them
Speculators are just that – speculators.
However, when looking at speculators as one of the different trading groups in the futures market, the picture changes. This group has specific characteristics. Above all, they are trend followers.
Technically, this group is called the ‘managed money’ category.
There is nothing wrong with trend followers. Many traders are following the trend.
The ‘problem’ with the silver futures market is that it tends to shake out speculators. They get burned, and experts have made the point over and over again that their trend following trading strategy, especially in the silver futures market, is not effective.
Silver: the most difficult market to trade
The above made comments do make sense.
They make a lot of sense, especially when looking at long term silver charts.
The dream of silver traders is to hit those moments in time when silver moves up big. The 50-year silver chart below, with quarterly candlesticks, shows that there have been many instances in history in which silver moved up a few consecutive quarters.
Equally important, purely from a trading perspective, are the hefty declines in silver – whenever silver moves lower, it tends to do so with a vengeance.
That’s what speculators in the silver futures market are trying to achieve: they keep on trying to hit a few consecutive winning quarters OR a sharp move lower.
Unfortunately, they tend not to be successful at this. While there are no studies that have been able to report specific results of this category of market participants, there is anecdotal evidence that speculators have a horrible performance in the silver futures market.
It does also make sense, looking at the silver chart with quarterly candlesticks, below, that silver has lots of choppiness on its chart. Just looking at the last 10 years (green shaded area) it seems simply impossible to be successful with a silver trend following trading strategy in the futures market. There is hardly any trend.
Speculators are giving up on silver – what, why, where
With the above made comments in mind, we look at the current trend as it relates to speculators positioning in the silver futures market.
Below is the silver price (upper pane) and positioning of speculators (expressed as an index, lower pane). Chart courtesy: Goldchartsrus.com.
As seen, there is a massive exodus ongoing when it comes to long positions of speculators in the silver futures market.
While this may sound scary, at first glance, it’s the exact opposite – super bullish for investors with a long term horizon (not leveraged).
Why?
Because it seems that speculators have entirely giving up on trying to hit a big trade (profit, return) on either side in the silver futures market.
Think about this:
- Silver has been unusually choppy since April 2024.
- Silver has seen steep rises and declines since then.
- There has not been a real trend in the silver price, certainly not for traders that hold highly leveraged positions (meaning their timeframe cannot be too long).
The great news?
If speculators (‘dumb money) are giving up, the ‘smart money’ is taking notice.
We believe that the ‘smart money’ is on to something big in silver. They are accumulating silver. Even on the recent soft silver price rise, which, admittedly, was very soft, speculators have been exiting their long positions.
While not a trend, it’s a sign that something is brewing.
We remain firmly bullish on silver, in 2025 & beyond. Whenever the pressure is off (Yields and USD stabilizing or declining) we should see strong price action in silver and gold.
CONTINUE READING – When Exactly Will Silver Hit $50 An Ounce?
