During March and April, a number of articles appeared at precious-metals-focused websites describing the silver market’s Commitments of Traders (COT) situation as extremely bullish. However, this unequivocally bullish interpretation overlooked aspects of the COT data that were bearish for silver. Taking all aspects of the data into consideration, my interpretation at the time (as presented in TSI commentaries) was that silver’s COT situation was neutral and that the setup for a large rally was not yet in place.

The enthusiastically-bullish interpretation of silver’s COT situation fixated on the positioning of large speculators in Comex silver futures. As illustrated by the following chart, over the past two months the large specs (called “NonCommercials” on the chart) first went ‘flat’ and then went net-short. This suggested that large specs had become more pessimistic about silver’s prospects than they had been in a very long time, which was clearly a bullish development given the contrary nature of speculative sentiment.

Chart source

However, two components of silver’s overall COT situation cast doubt on the validity of the bullish interpretation.

The first is that near important bottoms in the silver price the open interest (OI) in silver futures tends to be low, but in early-April of this year the OI hit an all-time high.

The second and more significant is that whereas the positioning of large specs in silver futures pointed to depressed sentiment, the positioning of small specs (the proverbial dumb money) pointed to extreme optimism. This is evidenced by the following chart, which shows that over the past two months the small specs (called “NonReportable” on the chart) reached their greatest net-long exposure in 9 years. It would be very unusual for a big rally to begin at the time when the ‘dumb money’ was positioned for a big rally.

Chart source

The upshot is that silver’s COT situation was not price-supportive at any stage over the past two months. This is mainly because the bullish implications of the unusually-low net-long exposure of large specs was counteracted by the bearish implications of the unusually-high net-long exposure of small specs.