Silver Could Spike to $50 Because of Huge Short Interest

Ananthan Thangavel of Lakshmi Capital is long silver futures and call options for his clients- and will add to his silver positions on any pullback. He knows there are huge short positions in silver; CFTC records show that 44.1% of the gross short position in silver is held by the 4 largest traders. And he reports in a comment on the silver market on Lakshmi's website ("A Twist on the Silver Market") that "Some traders I have spoken with are targeting the 40-50 level within 4 months." A chart of silver prices shows that silver in recent weeks has outshone the rise in gold prices by jumping 50% from around $18 to nearly $30 and then backed off to $27.16 today. This extraordinary increase in the price of silver suggests that short covering might explain part of the gain.

Nevertheless, bullishness on silver is also based on the feeling that "the world's silver supply and mining production is not enough to satisfy the increasing industrial demand as well as vastly increasing investment demand, Thangavel wrote me in an email Nov. 10. Only 116.1 million ounces of silver out of 2009 production of 709 million ounces were available to satisfy investment demand. "This huge shortfall indicates that the outstanding short position cannot be solely on behalf of producers, because there is a far larger outstanding position that could possibly be hoped to be mined this year, " Thanagvel wrote today.

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