Silver Open Interest Reaches Six-Year High on Short Bets

Holdings in New York silver contracts reached the highest in more than six years after investors added to bets that the metal will extend a slump as prices fell to the lowest since 2010.

Open interest in Comex futures rose 3.4 percent last week week to 176,501 contracts, the highest since February 2008, according to data compiled by Bloomberg. The measure was 171,000 contracts as of yesterday. Combined holdings in futures and options is at the highest in almost 17 months, U.S. government data show.

Money managers boosted their short wagers for eight straight weeks, the longest streak since April 2013, when the metal tumbled into a bear market. Long holdings are at a three-month low, leaving investors net-short for the first time since June. Prices are heading for a third month of losses amid the outlook for higher U.S. borrowing costs and cooling economic growth in China, the world’s top metal user.

“Silver is a great bearish play as people expect more downside,” Adam Klopfenstein, a senior market strategist at Archer Financial Services in Chicago, said in a telephone interview. “Silver is suffering because of its proximity to gold and as people are concerned about global growth.”

In New York, silver futures for December delivery rose less than 0.1 percent to settle at $17.779 an ounce at 1:39 p.m. on the Comex. The metal yesterday touched $17.325, the lowest for a most-active contract since July 28, 2010.

In September, the price has dropped 8.8 percent, heading for the biggest monthly loss since June 2013. The Federal Reserve last week raised its outlook for interest rates, crimping demand for inflation hedges.

Waning Demand

Demand for precious metals as a protection of wealth has been eroded by the outlook for a strengthening U.S. economy, which helped spark a rally in the dollar as the Standard & Poor’s 500 Index of equities surged to a record this month. The greenback also benefited from concern that growth is stalling in Europe, where policy makers announced more stimulus measures.

The silver net-short position was at 4,557 contracts in the week ended Sept. 16, data from the U.S. Commodity Futures Trading Commission show. This year, futures have dropped 8.2 percent, the biggest decline among precious metals amid dwindling demand for haven assets.

The metal plunged 36 percent in 2013 as equities surged and the Fed slowed the pace of monetary stimulus. The central bank on Sept. 17 reduced monthly bond purchases to $15 billion, keeping it on track to announce an end to the program in October.

Silver’s 60-day historical volatility is near the lowest in 11 years, according to Bloomberg data. Gold volatility is holding close to the lowest in almost four years.

“We expect silver to drop further, and the strong data out of U.S. will keep it under pressure,” Mike Dragosits, a senior commodity strategist at TD Securities in Toronto, said in a telephone interview. “Also, weakness in Europe and China raises concern about the industrial demand.”

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