Every once in a while the trading action in a given market breaks through its historically normal boundaries and starts exploring new territory. This can mean one of two things: Either something fundamental has changed, creating a “new normal” to which participants will have to adapt. Or the extreme move is a temporary aberration that will eventually be corrected by an equally extreme snap-back into the previous range.

The gold and silver futures markets are posing this kind of question right now, with speculators – who are usually net long – going net short, and commercial traders – who are usually net short – going net long. The following table shows how each group traveled even further into this unfamiliar territory in the past week.





The following chart illustrates how unusual this new market structure is. During most of the past year the speculators (gray bars) have been extremely long and the commercials (red bars) extremely short. Now they’ve swapped attitudes, with speculators betting that gold is going to fall and the commercials taking the other side of that bet.



The same process is at work in silver, where the departure from the norm is even more extreme. In other words, the speculators are very short and the commercials very long.

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