Intraday Market Thoughts

CME Tightens Silver, Game Hasn’t Changed

by Adam Button
Feb 1, 2021 23:29

Whenever something new and unusual occurs in markets, the temptation is to cut and run. We're wired to recoil and retreat from things we've never seen before; be it in nature or in markets. Even with that, we're surprised at the number of people we've heard from who have seen the madness in meme stocks and are clearing out of everything.  Less than 1 hour ago, the CME raised margin requirements on XAG Silver by 18% in an effort to stem speculation. CFTC positioning highlights the tepid attitude of sterling longs. The chart below, posted by Ashraf on here weeks ago, continues to steer the main markets as it did 3 years ago this week. 

CME Tightens Silver, Game Hasn’t Changed - Tweet Yields Dxy 2018 Analog Feb 1 2021 (Chart 1)

Is this really a gamechanger?

From a monetary policy stand point, the North Star re-appeared to traders last week when the Federal Reserve and other central banks reiterated their core message: Cheap money isn't ending in the near or distant future.  From a fiscal policy angle, Senate Republicans offered a nearly $700B stimulus package of their own with $1000 checks, so it's safe to say that US spending is coming.

At some point we will see if the market belief/expectation about the post-vaccine world match the reality but, until then-- investors will have to reach for that rainbow.

In the shorter-term, the pattern is clear. The broader equity market is moving inversely to meme stocks. The thinking – at least initially – was that funds might be forced to liquidate and others wanted to get out of the way of the downdraft. On Monday, as it became the squeeze was running out of gas, the dip buyers arrived.

Meanwhile in the FX market, the US dollar held a strong bid to start the week. It didn't line up with market moves elsewhere and will be something to watch. US economic data continues to impress and if inflation materializes, it will be in the US first and that's the bull case for USD.

Silver futures are already net long in the CFTC report but the aim of the crowd is to cause a squeeze in the physical market, namely through physical ETFs. They had some success late last week and so far this week. Given this mania, we wouldn't bet against them.

CFTC Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR +163K vs +163K prior

GBP +8K vs +14K prior

JPY +45K vs +50K prior

CHF +10K vs +9K prior

CAD +14K vs +10K prior

AUD +1K vs +5K prior

NZD +15K vs +16K prior

Speculators can't seem to get any traction in any trade and that's left positioning relatively stable for weeks. We find it somewhat notable that cable longs pared back even with sterling making some headway. That kind of reluctance and disbelief is often the sign of a longer rally; or as the saying goes: the best bull markets are built on skepticism. 


Latest IMTs