Someone is about to catch a bullet in the silver market.

Commodity funds are betting that the metal is headed for a fall. The net short position that money managers have in Chicago silver futures touched a record 39,604 contracts earlier this month, coming back slightly to 36,417 in the most recent report out Friday. That’s equivalent to about 182 million troy ounces, or five-and-a-half metric tons.

Meanwhile, the less specialist group investing via exchange-traded funds is taking the other side of the trade. Total ETF holdings in silver reached 665.4 million troy ounces Thursday, an eight-month high.

There are some fundamental factors supporting a bullish outlook. Mine supply, which increased for 13 consecutive years through 2015, fell for the second consecutive year in 2017, the Silver Institute, a producers’ group, reported last week.

Industrial demand, which consumes about 60 percent of the world’s silver, registered its first rise since 2013, driven by increased use in photovoltaic cells. Jewelers and cutlers, which together account for another quarter of the total, each posted increases.

The problem is with the balance of the market -- and that’s why the split between futures and ETFs is so significant. Investment demand for bullion bars and coins fell 56.7 million ounces, cutting that category by about a quarter relative to the previous year. Exchanges and ETFs, which had deepened silver’s market deficit by taking about 130 million ounces out of circulation as inventory last year, drew down just 9.2 million ounces in 2017.

In other words, silver’s supply side and demand from non-investment uses are both heading in a distinctly bullish direction -- but investors remain skeptical, keeping the metal in the range of $16 to $18 an ounce where it’s been trapped for the best part of two years.

Could that strong bearish position in Comex silver be the sign of a change? A lot of money is betting that the next move for silver is down, but it’s already looking cheap.

Silver has a reputation as the poor man’s gold, moving in tandem with its scarcer cousin. So far this year, however, the two have moved in opposite directions, with the yellow metal up 2 percent and silver off more than 3 percent.

The ratio between them, which had only broken above 80 briefly on three occasions in the past two decades, is back up at those levels again. That suggests either that the dynamics of the two commodities are changing, or that gold is overvalued, or silver is undervalued.

As the stunning reversal of aluminum’s three-month decline last week demonstrated, commodity markets can go wild when bearish investors are caught short. Silver has been a more somnolent metal since the drama of its 2011 spike dissipated, but it could still shine. Those betting on the tarnish spreading should watch out.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

To contact the author of this story: David Fickling in Sydney at

To contact the editor responsible for this story: Katrina Nicholas at

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