Investors in gold and silver are faced with a bit of a conundrum, albeit a pleasant one.

December 09, 2010 – Investors in gold and silver are faced with a bit of a conundrum, albeit a pleasant one. Both have performed spectacularly over the year, and silver has outperformed gold by well over 250%. The problem is that silver prices are notoriously volatile and subject to wild speculation. This year’s investor stampede into the commodities markets has once again raised the issue of speculative bubbles, especially as big fund managers have begun beefing up their positions in gold and silver.

Data provided by the Commodity Futures Trading Commission (CTFC), however, are very reassuring. Commercial participants in gold futures account for slightly more than half of open interest, and as expected they hold net long positions. But the remainder is held in net long positions and helps keep speculation in check.

The data for NYMEX silver futures are actually quite surprising. Commercial participants account for only 39.6% of open interest and although they hold net short positions, their long positions are up 3.9% while their short positions decreased by 6.8%. The bulk of open interest, just over 47%, is held by non-commercial participants who hold net long positions; non- reportable investors held the remainder in net long positions as well. Both groups decreased their long positions slightly but decreased their short positions by over 20%. All indications are of a sharp pullback by speculators offset by the stronger long term positions of big fund managers.

Still, the CTFC is poised to implement position limit measures aimed at curtailing any future speculative bubbles. For silver investors, who have experienced the wild ride of attempted market takeover more than once in the past, the added insurance would be welcome.

The good news is that both silver and gold investments are on solid footing today and experiencing real growth rather than being artificially driven by speculation.

Shannon King

Senior Staff Writer –

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