GS Robert Quinn Silver Futures Recharging

Towards the end of July, Managed Money Silver positioning appeared relatively low. As the month turned, an incrementally dovish FOMC meeting, JPY intervention, and reversal in oil prices all led to Dollar weakening and a resurgence in Metals, led by Silver. Managed Money gross longs were probably a key driver. The price recharge may now force some systematic short covering. That said, the physical market has not tightened. And GS FX Strategists do not expect a sustained Dollar downtrend, absent a clear signal from inflation data.

• Towards the end of July, Managed Money Silver positioning appeared relatively low. According to Commitment of Traders, Managed Money net length on July 28th resided at a 3% 2 year rank in notional terms.

• As the month turned, an incrementally dovish FOMC meeting, JPY intervention, and reversal in oil prices all led to Dollar weakening and a resurgence in Metals, led by Silver. Over July 28th - August 5th, DXY lost -1.7%. COMEX Metals traded substantially higher: Silver +8.3%, Gold +5%, Platinum +7.6%, Palladium +7.6%.

• Managed Money gross longs were probably a key driver. Silver aggregate open interest augmented +$2.4bn with the largest daily uptick manifesting toward the top end of the price range. Over the past 6 months, Managed Money gross long changes remained negatively correlated with DXY. Moreover, the option surface reflected call buying; 3 month implied volatility richened and normalized 25 delta put-call skew cheapened.

• The price recharge may now force some systematic short covering. Per GS Futures Strategists' framework, short-term momentum flipped on the August 5th close, forcing the start of CTA short unwinds. Note more repair is needed to change the medium-term threshold.

• That said, the physical market has not tightened. And GS FX Strategists do not expect a sustained Dollar downtrend, absent a clear signal from inflation data. Silver 3 month lease rates actually softened throughout the price rally.

Silver Managed Money Net Length ($)

Source: GS GBM, CFTC as of July 28th. Past performance not indicative of future results.