Global risk sentiment has started to stabilize following confirmation that the United States and China will restart trade negotiations in October. This has given global markets some respite, with global bond yields recovering some ground. Further support came from the Chinese central bank’s announcement of a cut to the reserve requirement ratio (RRR) for domestic banks for the third time this year. The combination of improved global risk sentiment, elevated silver prices and the reduced need for haven assets boosted selling interest in the short-term.
Latest net speculative funds positioning in silver was in line with price, which hit a fresh 2019 high at $19.65 per oz. The US commodity futures trading commission (CFTC) reported buying of 2,273 contracts in the week to September 3 via 1,489 new longs and the covering of 784 shorts. Silver’s net long fund position (NLFP) expanded to 62,125 contracts, just below the July 2019 high of 64,297 contracts.
But with such an elevated NLFP, the risk of profit-taking increases - indeed, we expect the next report to show there was selling and therefore a decline in silver’s bullish exposure.
Long-term ETF investors were keen sellers, removing 26.19 tonnes on September 5. This lowered total holdings to 22,405.46 tonnes, down from this year’s high of 22,452.51 tonnes. Further divestment could also mean that long-term investors are happy to lock in profits for now.
The healthy technical consolidation in silver has just started; we will give it time to test the bulls’ conviction.
All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.