Comex silver grinds to a halt
With open interest down to multidecade lows, trading in silver is the risk no one is prepared to take. Market-makers make wide prices and speculators are not prepared to play.
Open interest in both gold and silver Comex contracts is extremely low, as we explain in this report. And it should be borne in mind that current levels of open interest represent very oversold markets ripe for a bear squeeze.
Silver paper declines
With its enormous volatility, Comex silver is an excellent counter for a market maker to trade. But they are trying to close it down. The reason is simple. Even with less than 100,000 contracts open interest, the short side is an unacceptable risk. One can understand management oversight in the swaps and bullion banks telling their trading desks to get out of silver because despite the trading opportunities, mark-to-market losses are simply unacceptable.
This has driven open interest to lows not seen for over 15 years. The current decline in open interest started when silver rose above $40 as the chart below shows, confirming that traders were running scared of accommodating long speculators even then. The expiry of the May contract this week has seen open interest plummeting to 95,802 contracts this morning on preliminary estimates as the spreads to roll over into the July contract are deliberately made too costly.
However, within the confines of ultralow open interest there has been reasonable trading volume on Comex:
Gold’s position is similar
Open interest in gold is also at multiyear lows confirming deeply oversold conditions:
