Gold and silver have both been mired in slumps for the last nine months, with both metals losing significant ground.

Gold lost over 25 percent from its October high to its April low, and silver lost over 42 percent from its October high to its May low.

I have written about gold several times over the last few months, but silver has become more interesting in recent weeks.

Large speculators (hedge funds and commodity trading advisors) have been adding short positions at an alarming rate. The overall net position for the group as a whole is still long, but by the least amount in over 10 years.

At the same time, commercial hedgers have been lightening up on their short positions to the point that they are only short 5,020 contracts — the least number of shorted contracts in over 10 years.

Commercial hedgers are your bullion banks and they tend to add to their short position when prices are high, and they want to protect themselves from a decline in silver prices.

What this scenario seems to suggest is that the commercial hedgers aren’t very concerned about silver prices dipping significantly lower.

In the meantime, should the large speculators suddenly have to shift gears and start covering their short positions, the shift could cause a sharp rally in silver prices.

There is little resistance on the chart between the current price in the $21 range and the $25 level and then the next layer of resistance is up near the $28 level.