15 Oct 2011

15 Countries Sitting On A Fortune Of Metals And Minerals

Heading toward a future of commodity scarcity and soaring prices -- at least according to Jeremy Grantham and others -- natural resources have never played a greater role in national power and wealth.
We're going to recap a great report on the metal & mineral superpowers, which was published by Citi last year. Remember this report gives value based on 2010 prices, and doesn't count a big rally in the past year, with gold up 65%.
The U.S. has an impressive $613 billion in metal & ore reserves but ranks only No. 8 on this list.

15) Guinea has $222 billion in metal & ore reserves

15) Guinea has $222 billion in metal & ore reserves
Bauxite mine
100% of value is in Bauxite
444 years of production
Source: Citi (2010)

14) Indonesia has $227 billion in metal & ore reserves

14) Indonesia has $227 billion in metal & ore reserves
Port facilities at Indonesia's Benete Bay copper mine
Image: mining-technology.com
48% Copper
33% Gold
19% Nickel
27 years of production
Source: Citi (2010)

13) Mexico has $240 billion in metal & ore reserves

13) Mexico has $240 billion in metal & ore reserves
Mexico's huge Cananea copper mine
56% Copper
15% Gold
10% Iron ore
10% Zinc
62 years of production
Source: Citi (2010)

12) Kazakhstan has $292 billion in metal & ore reserves

12) Kazakhstan has $292 billion in metal & ore reserves
Kostanay region open-cast iron ore mine
64% Iron ore
22% Copper
10% Zinc
4% Bauxite
117 years of production
Source: Citi (2010)

11) India has $296 billion in metal & ore reserves

11) India has $296 billion in metal & ore reserves
Image: The Hindu
86% Iron ore
8% Bauxite
6% Zinc
164 years of production
Source: Citi (2010)

10) Peru has $328 billion in metal & ore reserves

10) Peru has $328 billion in metal & ore reserves
Southern Peru Copper Corporation
68% Copper
11% Gold
10% Zinc
23 years of production
Source: Citi (2010)

9) Ukraine has $516 billion in metal & ore reserves

9) Ukraine has $516 billion in metal & ore reserves
Gleyevatskiy iron ore mine
99% Iron Ore
1% Potash
161 years of production
Source: Citi (2010)

8) USA has $613 billion in metal & ore reserves

8) USA has $613 billion in metal & ore reserves
Bingham Canyon Open Pit Copper Mine in Utah
20% Copper
19% Iron Ore
12% Gold
5% Platinum
4% Zinc
3% Potash
44 years of production
Source: Citi (2010)

7) Chile has $661 billion in metal & ore reserves

7) Chile has $661 billion in metal & ore reserves
Chilean copper mine
Image: duquesneminesupply.com
85% Copper
8% Gold
31 years of production
Source: Citi (2010)

6) China has $717 billion in metal & ore reserves

6) China has $717 billion in metal & ore reserves
Chinese execs of Australia's Rio Tinto
57% Iron ore
15% Copper
8% Zinc
7% Gold
17 years of production
Source: Citi (2010)

5) Brazil has $726 billion in metal & ore reserves

5) Brazil has $726 billion in metal & ore reserves
Samarco Alegria Iron Ore Mine, Brazil
Image: mining-technology.com
70% Iron ore
8% Bauxite
8% Nickel
7% Gold
7% Potash
31 years of production
Source: Citi (2010)

4) Canada has $1,000 billion in metal & ore reserves

4) Canada has $1,000 billion in metal & ore reserves
Potash feldspar in Canada
79% Potash
6% Iron ore
5% Nickel
3% Gold
3% Copper
1% Zinc
1% Platinum (PGM)
56 years of production
Source: Citi (2010)

3) Australia has $1,588 billion in metal & ore reserves

3) Australia has $1,588 billion in metal & ore reserves
Western Australia iron ore mine
Image: leighton.com.au
46% Iron ore
22% Nickel
12% Bauxite
9% Gold
5% Copper
1% Zinc
43 years of production
Source: Citi (2010)

2) Russia has $1,636 billion in metal & ore reserves

2) Russia has $1,636 billion in metal & ore reserves
Image: France 24
49% Iron ore
20% Potash
14% Platinum (PGM)
8% Gold
5% Nickel
4% Copper
99 years of production
Source: Citi (2010)

1) South Africa has $2,494 billion in metal & ore reserves

1) South Africa has $2,494 billion in metal & ore reserves
Image: northam.co.za
91% Platinum
6% Gold
2% Nickel
1% Iron ore
184 years of production
Source: Citi (2010)


JPMorgan says gold is going to $2,150, and miners are way undervalued

Despite improving sentiment in Europe, this JP Morgan analyst is positive on gold as 'an insurance policy' because he suspects that changing the positive sentiment to actual reform would still be a difficult task.
Investors often turn to gold during times of economic uncertainty. But lately, that same fear has strengthened the U.S. dollar and seems to have brought gold prices down to US$1,672.70 per ounce level, from its US$1,900 per ounce highs.
For now though, gold looks set to keep rising. Despite improving sentiment in Europe, JP Morgan analyst John Bridges is positive on gold as "an insurance policy" because he suspects that changing the positive sentiment to actual reform would still be a difficult task.
JP Morgan London-based metals team just raised its Q4 gold price target to US$2,150 per ounce from $1,800 per ounce.
Bridges argues rising gold will benefit miners, which he thinks are priced for US$1,200 gold. 
He has overweight ratings on:
* Barrick Gold (ABX) - $53 price target
* Goldcorp Inc. (GG) - $63 price target
* Jaguar Mining (JAG) - $7 price target
* Kinross Gold (KGC) - $23 price target
* Newmont Mining (NEM) - $21 price target


13 Oct 2011

Market Slumps After European Banks Admit They Can't/Won't Raise Capital; Will Proceed With Asset Liquidations Instead

It was about an hour before the market close, which means it was time for the latest FT rumor. Only this time, unlike the 3 or so times before, the bazooka was not only a dud, it caused the inverse reaction of that intended, and led to a broad market selloff. The reason: according to the FT (and certainly take this with a salt shaker if previous experience is any indication) is that European banks have balked at the prospect of recapitalizing at current levels ("Why should we raise capital at these [depressed share price] levels?” said one eurozone bank boss. The average European bank’s equity is trading at only about 60 per cent of its book value.) and instead will opt for asset liquidations. Now, whether they won't, or, as we have claimed since the first day we heard of the ludicrous "recap" rumors, they can't, simply because absent a massively dilutive rights offering, nobody in their right mind would lend to an industry which continues to be locked out of short-term funding markets for the 4th month in a row, is largely irrelevant. As a result no new money can come in: a key prerequisite to any European recapitalization plans. Of course, it is one for a "blog" to say that, it is something else for the FT to confirm it, even if it is a rumor. So what will banks do instead: why proceed with all out asset liquidation, and sell anything that is not nailed down. The strawman is that this is capital needed to fund the banks' requirements for higher capital ratios per Basel III and what not. The truth is that banks desperately need any capital just to operate as a going concern, forget some Basel Tier 1 ratio that will only be relevant in 2016. So yes: the bitter truth comes out - recap out; liquidations in, especially of USD-denominated assets. Next step: the realization that he who sells first, sells best. So yes, the "hope, idiocy and #mathfail" induced rally was fun while it lasted. And now it is back to reality.
From the FT:
This radical approach, led by French banks BNP Paribas and Société Générale, would be copied by lenders across Italy, Spain and Germany, bankers said. “Why should we raise capital at these [depressed share price] levels?” said one eurozone bank boss. The average European bank’s equity is trading at only about 60 per cent of its book value.

However, the banks’ “shrinkage” strategy is likely to prove controversial with politicians and regulators if it led to bankers lending less money to customers, jeopardising the eurozone’s fragile recovery, analysts warned.
As was reported earlier, it was Barroso who had a massively disappointing session earlier today, in which not only did he not announce any of the specifics on the EU bank recap plan (because they do not exist!), but demanded that banks scramble to raise their capital ratio, in essence undoing everything that had been done to the moment.
Mr Barroso stopped short of specifying the target ratio, but people close to the process told the Financial Times on Tuesday that the European Banking Authority, the regulator, is poised to set a higher bar than expected – a 9 per cent ratio of core tier one capital to risk-weighted assets – for banks across the continent. A deadline of six to nine months would be set for forceable recapitalisation by governments, if banks have not reached the ratio under their own steam.
But that, as noted, is merely the strawman to give banks cover before investors who demand to know the reason why banks are now scrambling to sell anything not nailed down.
Banks and their advisers said their scope to raise fresh capital from investors was all but non-existent. “I don’t think anyone has access to the markets now,” said one senior European investment banker. Investors are loath to commit to fresh equity injections, in the knowledge that the new money would simply be soaked up by sovereign debt writedowns, bankers said.
But by shrinking assets – the denominator of capital ratios – many banks believe they can reach the targets without resorting to government recapitalisation. In recent weeks, both BNP and SocGen have signalled plans to offload a combined €150bn of risk-weighted assets. Further businesses could now be sold. Italy’s Unicredit and Germany’s Commerzbank were likely to find themselves under most pressure to deleverage and divest assets, bankers said
The FT then proceeds with details about the latest, greatest and fakest stress test about to be unleashed which nobody will care about, as well as what the targeted cap ratio is. That is all irrelevant.
All that is relevant is that suddenly everyone will start wondering what USD-assets do European banks have in inventory that are about to hit any bid in the market. Some hints: stocks, CMBX and, you guessed, Prime-X.


12 Oct 2011

Preparing for the Greatest Depression and a Greek Default

It is now clear the US economy has broken down in a BIG way. Indeed, no less than Ben “green shoots” Bernanke has stated that the recovery is “close to faltering.” This, coming from a cherrleader like Bernanke is essentially an admission from the powers that be that the US economy is a disaster.

Indeed, the recent manufacturing survey just posted its second consecutive month of contraction. As ZeroHedge noted, collapse in this economic metric has been greater than any two-month period in the last ten years, including 2008.

We also see that the ISM purchasers managers’ index, the Philly Fed index, payrolls, and the ECRI weekly leading index are all at or about to break into recessionary levels.

These are, of course, mainstream indicators of economic activity, which are heavily massaged. The economic realities in the US are far worse than even they proclaim as food stamp usage (43 million a record high), the labor participation rate:

… and U6 unemployment numbers reveal:

Suffice to say, the US economy is a disaster. And yet, analysts are expecting another earnings season of double-digit growth (the eighth quarter in a row). Somehow I think we’re in for some major surprises to the downside this earnings season.

Meanwhile, across the pond, things are getting truly desperate in Europe. I’d like to show just how bad they are by way of example: the Belgian bank Dexia, which is now in the process of being nationalized.

For starters, Dexia had 566 billion euros in debt and 19 billion euros in equity as of the end of 2010. Right off the bat, that’s a leverage ratio of 29 to 1. Lehman Brothers was leveraged at 30 to 1 when it collapsed.

Now consider that Belgium’s entire GDP is just 348 billion euros. Dexia has 566 billion euros in assets. Of this 352 billion are loans. Put another way, Dexia’s loan portfolio alone is larger than its home country’s entire economy.


Suffice to say, Europe’s banking system is in far FAR worse shape than anyone over there is admitting. The stress tests were complete and total fiction. And the market is starting to figure this out.

Small wonder then that had both the IMF and the Bank of England have recently warned that the world is facing a “financial meltdown” and “the worst financial crisis in history.”

Ben Bernanke issued his own statement of doom last week as well, stating that his precious recovery is “close to faltering.” For a guy who’s spent TRILLIONS trying to create a recovery to admit things aren’t working out ought to give you an idea of just how bad things will be getting in the near future.

Indeed, stocks were rejected last at a descending trendline from the July top. We should have at least gotten a bounce to the 38.2% retracement (1,200 on the S&P 500). So if the market fails to get there and simply rolls over here, then we’re going DOWN in a big way FAST.

Here is the reality of the financial system today:

§  The European banking system is facing systemic collapse.
§  The US economy has rolled over and is in a confirmed double dip in the context of a larger DE-pression.
§  The Central Banks and regulators have admitted we are peering into the abyss and they have no clue what to do.

Yes, I believe that before this mess ends, the financial system as a whole will have collapsed. What's coming is going to make 2008 look like a joke.

If you have yet to prepare yourself for what’s coming, now is the time to do so. Whether it’s by moving to cash and bullion, opening some shorts, or simply getting out of the markets altogether, now is the time to be preparing for what’s coming (remember, stocks took six months to bottom after Lehman… and that was when the Fed still had some bullets left to combat the collapse).

10 Oct 2011

The Paradox of Deflation Facing Global Investors

The primary purpose for markets is to allow buyers and sellers to reach a deal, strike a price. Anything that distorts this purpose, leads the world inexorably toward crisis and chaos. Free markets best determine prices based on how many sellers there are of goods, services and assets and how much they have available to sell, and of course how many buyers there are and how much those buyers want to buy and are willing to pay. Truly free markets balance supply and demand. The economic calculation problem means governments cannot determine accurately how to intervene.
Government fiscal or central bank monetary intervention distorts the prices that free markets are attempting to ascertain at any given time of houses, cars, stocks, bonds or beans. Attempting the impossible, Keynesian mechanics in governments and central banks have unleashed dynamic forces they cannot control. These forces are leading inexorably toward chaos. The paradox of deflation, ironically, may be the only thing that can restore order out of the chaos.
The amount of currency and the prevailing rates of interest also come to bear on the destiny of prices, nationally and globally. Global markets for all goods, services, labor and assets, both financial and hard assets, are in a state of greater flux than usual these days. Sellers, buyers and producers are all trying to figure out what is next for prices, and they are sweating the outcome of their decisions, and for good reason, the destiny of the global economy hangs in the balance.
First, it must be recognize that the Internet is changing the pricing mechanism of markets, providing information and making the pricing mechanism of markets more transparent. From Groupon's deals of the day for a local restaurant to options on Netflix to Greek bonds, buyers and sellers review the available and evolving information with lightening speed. Prices go up, and prices go down, based in large part on the number of willing buyers and the amount of goods, services or assets sellers hope to sell at a particular place, price and time.
There is a great debate raging regarding whether the greatest global financial crisis in history will culminate in a monetary folly driven inflation or a debt bust induced deflation in the price of everything. It is likely that this important debate will be settled by the pricing mechanism of markets, and not by misguided government fiscal and central bank monetary intervention, which is rapidly losing its charm. Mr. Market always gets his way in the end.
The focus on prices is now more tangible than ever as the stability of the global economy comes down to the wire. Either the government stimulus and central bankers of the world have stopped the great deflation, and the prices goods, services and financial assets will now rise, or the price trends in markets from the NYSE to the local flea market are starting to indicate they have failed. There is mounting evidence that a great deflation, paused since market crisis lows in 2009, will now swamp the global economy. Deflation threatens to turn world markets upside down.
Gary Shilling is one of the most articulate expositors of the case for a deflationary outcome. He has presented five different deflations currently at work and plaguing the global economy in his book, The Age of Deleveraging. Shilling's fabulous five deflations are, 1) financial asset deflation, 2) tangible asset deflation, 3) commodity deflation, 4) wage deflation, and 5) currency deflation. Shilling makes a compelling case for all five categories of deflation, which threaten to torpedo the global economy into the up and coming bottom of the long wave winter season. Anyone looking for an inflationary resolution to this global mess should ponder the wisdom of Shilling's reasoning and the many decades of experience and accurate forecasting.
Inflationists largely hang their arguments on monetary theories of inflation. The Austrian school of economics is correct, the less government and central bank intervention the better, but their expectation for an inflationary outcome is likely misguided. The problem with the Austrian view is their belief that booms and busts are primarily the result of inflationary monetary policy. They fail to recognize that business cycles are driven at a much deeper level of the human psyche. Monetary policies are only part of the puzzle of human action. There were fabulous booms and busts in the global economy long before the innovation of fiat currency managed by central bankers. Bad monetary policy ultimately makes business cycles worse, but business cycles, large and small are natural events, ebbs and flows in inflation and the paradox of deflation. Central banks do not cause booms and busts, they just make them worse.
Central bankers rarely defend themselves. They do not like to point out that it is bad government fiscal policy that creates the problems they must attempt to fix with tools that will not work. Few recognize that the world would scarcely know the names of central bank Chairman's Bernanke and Trichet if their respective governments were competent enough to manage a simple budget. Those that think Congress should be running the banking system should reconsider that option.
Central banks are bad policy enablers, and are then charged with trying to clean up the mess left behind by the political tomfoolery. Financial philosopher PQ Wall was fond of saying, "Politics destroys the money world." A more accurate and salient observation into the current global crisis is hard to find. Fortunately, Mr. Market, driven by human ingenuity and survival instincts, has always found a way to fix the mess handed to us by the politicians. In the future, the rise of private and sovereign digital gold currency will help keep the politicians in check, and provide an option to businesses and savers when central bankers enable politicians to trash their currencies and their economies.
Ideas have consequences. The problem with politicians and central bankers trying to fix the economy and financial markets is unfortunately the misguided foundation to their Keynesian approach. It is important to recognize that Keynesian economics is based on the false premise that Newtonian mechanics can be applied in global economics and finance. The idea that the right torque on a few bolts or the right amount of pressure on a lever at just the right time will right the global economic ship is simply wrong-headed thinking.
There is some interesting history on this front. Economist Paul Samuelson had a major impact on current economic thinking. In his 1947 book, Foundations of Economic Analysis, Samuelson asserted that physics is the science for economics to imitate. The problem here is that it takes a while for academic types to catch up with what is going on in fields outside their own. Samuelson pointed economics toward Newtonian mechanics where weights and measures can be calculated. Newtonian mechanics leads economists to believe that once calculations are made, bolts can be torqued, and deflation can be stopped. If it were true, this would be great, but unfortunately, they have discovered physics do not work that way. The politicians and their yes men have not caught up with the science.
Here's the problem, the field of physics had blown past Newtonian mechanics to the wonderful world of quantum mechanics and unknowable outcomes. The implication of the quantum mechanics approach to physics confirms Fredrick Hayek's position that economists don't know how hard to torque that bolt, or what the outcome will be of experimental fiscal and monetary policy efforts. Hayek explained this fundamental issue with Keynesian intervention in detail as theeconomic calculation problem. The implication for economics imitating physics with Newtonian mechanics is clear. Failure is not just probable, it is guaranteed. You cannot accurately calculate or measure the policy needed or the response it generates. If you actually manage to measure accurately, the field of economic activity then changes. Unexpected changes are sometimes radical, based on the Heisenberg's uncertainty principle, sinking your plans.
Based on Shilling and other articulate deflationists, Chairman Bernanke and his European counterparts are right to be terrified of deflation. The real question is whether they can stop deflation with Keynesian-Newtonian mechanical intervention, or will they simply make matters worse due to the economic calculation problem.
A great example of Keynesian-Newtonian mechanics gone awry is that artificially low rates are reducing if not eliminating the income and therefore spending of savers, reducing real demand and feeding deflation. Lower interest rates for business, while intended to encourage economic growth and job growth, are keeping the production lines of weaker producers running full tilt, feeding overproduction, and increasing global deflationary pressures. Yes, there is solid reason to believe that monetary policy that is seeking to stop deflation will just make it last longer, and may make the deflation worse than it otherwise would be, crushing the little guy, while perpetuating the inefficient world of crony capitalism run amuck.
Central banks are now considering doubling down on their efforts to try to stop deflation. The notion that it is the role of governments and central banks to manipulate market-pricing mechanisms with monetary and fiscal policy, in order to achieve some subjective gain, is rooted in Keynesian notions of the role of government. The Keynesian approach is based in the idea that fiscal and monetary policy is a form of applied Newtonian mechanics. More torque on the wrench or nut will be just enough to produce jobs. Good luck with that.
Paul Krugman is one of those proposing aggressive Keynesian based efforts to stop deflation. Krugman is terrified by the looming specter of global deflation and believes it is a major threat to the global economy. You have to enjoy the irony here. It is possible to disagree with all of Krugman's Keynesian policy recommendations, while recognizing his brilliant insights into the nature of deflation. In articles over the past decade he has written of what he calls the paradox of deflation. Krugman explained the paradox of deflation in a 1999 article as follows, "Japanese-type deflation is an economy's way of 'trying' to get the expected inflation it needs... The logic of deflation in a liquidity trap is the same; it is because spending in the current period is unattractive unless prices are expected to rise that the current price level is pushed down."
What Krugman clearly does not appreciate is that this is why markets work. The paradox of deflation comes into play for global investors and traders as they begin to recognize that in order to get the rate of returns they require for the risks they take, based on the prospects for corporate profits and cash flows, that financial markets must endure price deflation and fall substantially. This is required so that they can then rise at a clip where the potential reward justifies the risk taken by investors.
Global equity and bond markets are now demonstrating the paradox of deflation at work. The great global equity long wave deflation discount is underway, so that investors can realize an acceptable rate of return in the future. The chart below is the inflation adjusted S&P 500, which reflects the long wave ebb and flow. It illustrates, adjusted for inflation and by default deflation, where the paradox of deflation finally turns to reward for the prudence of patience. The patience of waiting for the paradox of deflation to run its course before buying is a challenge. However, it tends to work out better for investors than buying because central bank policy is tricking you into drinking the cool aid and going long.
The global long wave deflationary adjustment has been in the works for years. When Mr. Market has a sale, the paradox of deflation is in play. Invariably, it is when everyone wants to sell and few want to buy that it is the best time to buy. That time has not likely arrived yet, but it is not that far away. Good technical analysis is all about finding the pivot points where the paradox of deflation offers patient investors a buying opportunity. New methods in Fibonacci drill-down grids and Gann-Fibonacci fans identify the large and small shifts in the paradox of deflation in global market cycles, as demonstrated in the chart below.
By tracking the large and small market cycles, you are essentially tracking the paradox of deflation in global financial assets. Tracking the cycles allows you to better estimate when the paradox of deflation has played out. Those that recognize the forces at work in markets will buy when the paradox of deflation has run its course, and most investors are throwing in the towel, believing that doomsday has finally arrived. It is then that the seeds of the coming global long wave spring season will sprout and the paradox of deflation will give birth to a global boom.

COMEX Commercial Silver Net Shorts Lowest in Eight Years

Large traders the CFTC classes as “commercial” report lowest combined net short position for silver since April 1, 2003.
--COMEX Commercials reduce net short bets on silver by 60% past month as silver drops 28.5% - position suggests low confidence in lower silver prices.  

HOUSTON -- The Commodity Futures Trading Commission  (CFTC)  just released its commitments of traders (COT) report at 15:30 ET Friday for trader’s positions as of the close on Tuesday, October 4, and according to that report traders the CFTC classes as “commercial” reported their least net short positioning for silver in more than eight years.
Recall that a week ago we reported a stunning drop in the large commercial net short positions (LCNS) in both gold and in silver futures. The “commercials” continued to reduce their net short positioning in this week’s report, a small 1,932-contract reduction in gold futures,but another relatively large reduction of 5,339 contracts in the LCNS for silver futures.

To put the silver changes in our usual format, as silver fell $1.84 or 5.8% Tuesday to Tuesday, from $31.88 to $30.04, commercial traders reduced their collective net short positioning by a large 5,339 contracts (22%) to show just 18,923 contracts net short.  The total open interest edged 912 contracts lower to 101,102 open. 

Just below is our graph for the commercial net short positioning for silver futures on the COMEX. Note that the current LCNS is lower than all the previous data on the chart, meaning that the current net short positioning of the commercial traders is not only quite low, it is historically so.
(Silver LCNS – Source CFTC for COT, Cash Market for silver.)
Indeed, we have to go all the way back to April 1, 2003 to find a lower commercial net short position for silver futures (15,845 contracts then with silver then $4.43). Just below is a much longer term chart of the silver LCNS for reference.  Apologies are in order.  This is a very large chart and it has to be reduced quite a bit to appear in this format. 

(Silver LCNS – Long Term. Click on the graph for a somewhat larger version.)

As of Tuesday, the largest, best funded and presumably the best informed commercial traders of silver futures continued to get much “smaller” in their net short positioning for silver futures.  There can be no doubt that the commercials view the current downdraft for silver as a silver plated opportunity to very strongly reduce their short bets in the leveraged paper silver contracts. 

As shown in the graphs above, just since September 6, as the price of silver declined $11.95 or 28.5% COMEX commercial traders have reduced their collective net short positioning for silver by a remarkable 28,383 contracts or 60% (not a misprint), from 47,306 to 18,923 contracts net short. 

We compare the nominal silver LCNS to the total open interest.  We think that gives us a better idea of the relative positioning of the largest hedgers and short sellers – the Producer/Merchants and the Swap Dealers combined into a single category – compared to all the other traders on the COMEX. When compared to all contracts open, the relative commercial net short positioning (LCNS:TO) for silver fell from an already low 23.8% to a shockingly low 18.7% of all COMEX contracts open.  (Remember, just four weeks ago the LCNS:TO reached 41.7%, the highest LCNS:TO of the year.)  The silver LCNS:TO graph is just below. 

(LCNS:TO - Note that we had to adjust the right axis to accomodate a lower reading.)
The last time that the relative commercial net short positioning was below a very low and very bullish 18.7% was also in that April 1, 2003 COT report, when the LCNS;TO came in at 17.8% (with $4.43 silver). 
Clearly we can say that the large commercial traders have taken advantage of the current drop in the silver price to get the heck out of a huge portion of their formerly underwater net short positions.  Indeed, as of Tuesday, they had reduced their net short positions to the equivalent of where they were with silver bottom hugging at $4.43 eight years ago. 

Just as clearly, the usual Big Sellers are not positioning as though THEY believe that silver has much in the way of downside left in it.  We would have to say that the usual Big Sellers of silver futures are positioning as though they believe the opposite is more likely.
Does that mean that silver is set to rally sharply?  No, not necessarily, of course.  Anything is possible short term, especially with all the angst out there and potential black swans circling (and landing).  But what we think it does mean is that the heaviest of the “heavy hitters” in silver futures are positioning as though they really don’t want to bet on a falling silver price very much.
As a matter of fact, in the Bank Participation in Futures report, issued monthly by the CFTC, we note that the less-than-four reporting U.S. banks in silver futures reported a net short position of “only” 14,388 COMEX contracts, a reduction month-on-month of 9,471 lots (39.7%) to their smallest nominal net short positioning since July 1, 2008 – just ahead of the 2008 Panic (6,177 contracts net short then with silver then $18.10). 


(Banks in Futures Report – U.S. Banks, less than 4 reporting, monthly, source CFTC for COT, Cash Market for silver). 
Interestingly, although the U.S. banks are at their lowest nominal net short positioning for silver futures in three years, what net shorts they still have actually rose as a percentage of all commercial net short positions – from 50.44% to a relatively high 76% as of Tuesday.  That is in part because the commercial net short position is itself quite low at “only” 18,923 contracts net short.  
(Banks in Futures Report – U.S. Banks net positioning as a percentage of the entire commercial net short position.)
We are sure we do not have to point out to Vultures (Got Gold Report Subscribers) that what remains of the very low commercial net short position is pretty concentrated in “less than four” and probably just two large U.S. bullion banks.  Probably just two U.S. banks hold three-quarters of the remaining commercial net short positions on the COMEX, division of CME.
We must be very close now to the point where the commercial net short positioning becomes inelastic regardless of the price of silver.  We must be very close to the point where a majority of the remaining commercial net short positioning is in the form of long-term hedges – we believe.  An enormous amount of bullish firepower (the other side of the LCNS by inference) has hauled to the sidelines with the silver price still clinging to the $30 level.  In a normal market this COT report would be pound-the-table bullish. 
Bottom line:  The market price of silver is liable to do anything very short term, but the largest of the largest commercial traders are positioning as though they believe that silver has a great deal more upside than the opposite. 
For the week silver down $1.84 or 5.8% - LCNS down 5,339 or 22% - to the lowest LCNS in 8 years.  This suggests little confidence by the comercials in lower silver prices looking ahead.   

Edit at 23:15 ET to add graphs from the disaggregated COT report by request. 
The Producer/Merchants (PMs) commercial traders, the category of traders that likely includes bullion banks, reported a reduction of 3,689 contracts for the week to show 29,874 contracts net short, the lowest PM net short position since September 4, 2007 (26,909 contracts net short then, with silver then $12.09).

(Producer/Merchant commercials)
Remember that in the PM graph, the position is expressed as a negative number.  As the PM net short position falls the blue line rises and vice versa.  The PMs have reduced their collective net short positioning by 19,972 contracts or 40.4% just since September 6, when they reported holding 49,846 contracts net short with silver then $41.99.   So as silver has fallen $11.95 or 28.5% the PMs have reduced their net shorts by 40.4%. 
The traders the CFTC classes as Swap Dealers (SDs), “the other commercials,” reported an addition of 1,650 contracts to their net long position, to show 10,951 contracts net long.  This marks the largest net long position for the SDs since April 21, 2009 (12,316 net long then with $12.02 silver).
(Swap Dealer commercial traders)

Netting between the PMs and the SDs roughly approximates the combined commercial LCNS reported in the legacy COT report (the first three graphs above) although not exactly. 
Finally, the traders the CFTC classes as Managed Money (MMs), liquidated or otherwise reduced their net longs from 14,354 to just 10,392 contracts net long – the lowest net long position for the usually long traders since July 21, 2009 with silver then $13.54. 

(Managed Money traders)
Since September 6, as the price of silver fell $11.95 or 28.5% the traders classed as Managed Money have liquidated 16,014 contracts or 60.6% of their collective net long positioning in silver futures on the COMEX, division of CME.   
That is all for now, but there is more to come.