QuickSilver

(updated 3/1/21)

The mainly big banks have been playing a no lose (so far) game for years.  They have maintained a concentrated short position in gold and silver- selling more when the price is going up to cap the rally and then buying back as they manipulate the price lower. See my article on how they have done this.  As of 2/24/21 the top 8 silver shorts per the CFTC weekly COT report are almost 80000 contracts short silver.  That is the equivalent (at 5000 oz./contract) of almost 400 Moz. of silver.  They seem to be having trouble at this point trying to get out of that position as they have been short this much and more for the last 6 months at least. I have no doubt they will do everything they can to get out of this position without losing their shirts or maybe their companies.  See my Open Letter to the 8 Big Silver Shorts.

I know that Ted Butler has made an estimate on what the entry price of these silver short contracts was, but I can’t find that info right now. But, I am sure it was well under $20/oz. probably around $16 – 17/oz. and they seem very adverse to buying those back at a loss. The top 8 shorts may not be the same for both silver and gold, but they are currently (2/26/21) about $10 billion dollars in the hole- combining realized and unrealized losses.

Woes the big banks- right? I say this is the little guys chance to stick it to the “big boys” for once. We can keep their feet to the fire. The more silver we buy, the more people understand the situation, the higher the price goes, the more they lose, the more we gain. At some point (soon I think) one of them is going to flinch and buy back their short contracts, causing the price to jump up, causing the rest of the big silver shorts to fall like dominoes. How can they buy back a 4 month’s supply? Or the way I look at 350 moz. is over 15 month’s of Available Silver Production for Investment (ASPI) after average silver use, so ASPI is the amount available for investment.

For a long time now the futures market has dictated the price.  That is not the way future markets are supposed to work.  The supply and demand of the physical commodity is supposed determine the price and the futures market is supposed to give producers and users a chance to lay-off some of the risks.  It is upside down in the PM markets and is completely out of hand in the silver market.  For decades Butler has advocated for position limits in the futures market that would prevent these concentrated positions from controlling the price.

You may have heard the expression “silver is the poor man’s gold” and I think the current situation will prove that point. There are millions of people who could buy one ounce of silver per month, but not near that many that could afford an ounce of gold per month. I think gold will do fine in the coming market (see Gold), but I believe that silver will do much better.

I am a recreational poker player and in poker there is a term- “pot odds”. The term is somewhat intuitive and basically means that the amount you will win if you make your hand gives you odds to call (sometimes raise) the current bet. There is also the term “implied pot odds” which refers to the total amount that you assume the pot will be by the end of the hand. While I think silver presents great pot odds, I also think it has tremendous implied pot odds. In other words I think silver is currently a good investment, but if silver does what it could and should, it will be a tremendous investment. Is there a guarantee on either scenario? No, but I cannot think of another investment that has the pot odds of silver.

The big question is when? If it is going to be another 10 years before silver lives up to its potential then obviously nobody would get too excited. But I believe the key to silver taking off in price is simply awareness of the Silver Story. But, how people become aware of the silver’s status is much more complicated. I have frequently emailed most every politician and media outlet that I can think of stating the following: silver is being manipulated, it is a crime in progress, the government’s own COT report confirms the manipulation and recommend reading Ted Butler. An average investigative reporter (or ambitious intern) could glean enough information in a couple of hours to convince themselves that they could write a very interesting and important article about the silver market.

Currently the silver market setup is extremely bullish. I have explained this in the post Available Silver Production for Investment (ASPI) and other places on this site. The main point is that silver is a small market, both in supply and dollars. Any investment is a gamble and all we can do is our best to compare risk to reward. I believe that public awareness of this manipulation is growing and the silver manipulation (to the downside) must come to an end sooner rather than later. Even holding cash or putting money in a guaranteed account, has risk- mainly inflation. This makes silver a great investment. Given the current state of silver I feel there is nothing wrong with trying to logically speculate on the outcome. Following is what I think is most likely to occur with the silver market.

There are many triggers that could set silver off and up. Typically, precious metals prices go up with uncertainty as investors look to use gold and silver as a “store of wealth”. It seems to me that uncertainty is about as high as it has ever been in my lifetime- maybe with the exception of the Cuban missile crises. In my opinion is we might not even need a trigger with the big banks shorting silver by over 350 Mozs. There are plenty of other triggers that could start the silver price on an upward trajectory. I think any of the following events are more possible than “normal” and could be triggers.

• Widespread public awareness of the silver market manipulation.
• A major military conflict.
• A major or series of natural disaster(s).
• Inflation rates increase significantly
• Gold to silver (investment) conversion
• A physical silver shortage
• A stock market crash
• An investor or group of investors (the public) buying silver
• And/or a major pandemic

I’m sure there are many other potential triggers. Let me know what you think might be coming that could be a trigger. Once the manipulation ends does that mean that the commercials (or others) won’t try to re-establish it? No, but I think once the dam is broken it is going to be very difficult to re-establish at least until the physical supply gets back in balance. So, once the price goes to $20 or more (now) there is going to be increasing public awareness of silver. Silver has been called the “poor man’s” gold because it is more accessible (pricewise) than gold. Many more people can go to their local coin shop and buy a Silver Eagle than can buy a Gold Eagle. Available physical silver is the key to ending the manipulation. There is only about 22 Mozs. of new silver available per month for investment demand compared to the annual supply, after taking out what is used for industry and fabrication. See the Silver Institute annual survey under the LINKS.

The next leg up will be to $30+ as the public gets more excited about silver and buys more physical and EFT silver. As the price goes up and potential supply bottlenecks, the industrial users will become concerned about making sure they have silver so they can make their products. Some of these users may start looking for alternatives to silver, but that won’t happen overnight. Silver producers (miners) will look to mine more silver, but that won’t happen overnight either. Recycling/Scrap will increase but that will also take some time to get into the “pipeline”. If industrial users try to increase their inventory this could cause a sudden demand of about 50 Mozs. See my post on Physical Supply for some more details on this scenario. The combination of investment demand and potential industrial demand will cause silver to go up to $50/oz. Silver between $30 – $50/oz. will be getting a lot of attention and the public awareness will snowball. Remember when the housing market was booming and you had everybody and their cousins flipping houses?

Once the price hits and goes over $50/oz. I think the silver market will get really hot By this time MSM will be reporting on silver (and gold) and increasing numbers of people will be trying to buy into an already very tight silver market. I think it could take a year or so from the time silver breeches $20/oz. until it gets to $50/oz. It could happen slower or faster, but I think a year is a good guess. The last time silver hit a high ($48.70/oz.) it took about 7.5 months (163 trading days) to go from $20.31/oz. to the high. Once it goes over $50/oz. I think it will go up to $100/oz. fairly fast- maybe just a few weeks or months. Over $50, we are in uncharted territory. There may be investors trying to short silver to cap the price, the USG could be looking at ways to stifle demand- including confiscation, the COMEX may stop trading and/or be in disarray. Any of those things could cause a lot of price volatility. I think anyone invested in silver will need to be on their toes. I am not forecasting what WILL happen, just what I think could happen and in some instances what is likely to happen. The main point is there could be several different routes on how we get there ($50+) and there will be many different things happening, so we will need to evaluate the situation at that time. I have seen predictions of silver at $100, $200 and even 1:1 to the price of gold. Obviously, I or no one else KNOWS what the price of silver will be and we will only know the high price once it backs off.

I do think that at some point after $50 and more likely after $100/oz. that silver will get into a “bubble” situation, so trying to hang in until the absolute top could get very tricky, but depending on how wild it gets could be very profitable. From now (9/27/20) at $24.00 to $100 is a 300%+ gain. To grab a number that sounds reasonable to me I would say that silver in an un-manipulated market should be around $50/oz. (based on 2020 dollars). I think things will “get bumpy” (be volatile) once silver goes over $50, up to the top and then back down to what will become a stable price range.

The other big plus for silver is the current silver to gold (Ag:Au) ratio compared to historical averages for this ratio. Currently, it is up around 80:1 (takes 80 ozs. of silver to buy 1 oz. of gold). Historically, that ratio has been more like an average of 55:1 and lower. Typically as silver prices rise the Ag:Au ratio goes down. At the two highs of silver on 1/18/1980 ($49.45) and 4/28/2011 ($48.70) the Ag:Au ratio was 17.2 (approx.) and 31.5 respectively. So, even though the gold price is likely to increase, the silver price is likely to increase by twice as much or more. The above ground gold market is estimated to be worth $11.4 trillion at current (10/2/20) price of about $1900/oz. So, what would happen if/when silver starts going up, 1% of gold were to convert to silver. That would be $110 billion dollars and at $24/oz. that would buy over 4.5 billion ounces of silver. The only trouble is there are only 2 -2.5 billion ounces of silver above ground, at least in 1000 oz. bars. The graphics at Markets gives a very good visualization of the size of different markets.

So, silver is the golden child, so to speak. What could go wrong? As I have said I think the run up of the silver price could be very volatile, but I also think the pot odds are very good. See the section of Risk & Disadvantages to get an idea of some of the risks as I see them. Please comment with ideas of either the advantages or risks of silver investing.

Assumptions:

1. JP Morgan (JPM) and other large commercial banks have been manipulating the silver price to the downside for at least 10 years.
2. JPM has acquired 650 – 700 Moz. of physical silver per Butler over the last 9 years.

Risks & Disadvantages:

• I think the risks of investing in physical silver are minimal, but should be noted and watched for.
• 30 years ago silver was under $5/oz for quite a while. It went up to just under $50/oz. in 1980 when the Hunt Brothers tried to corner the market, then crashed when they were stopped. It went up to almost $50/oz. again in the months before May 1st of 2011 due to physical tightness. Then manipulators took the price down . They have worked it down and it has been in the current trading range ($15 – $20/oz.) pretty much ever since, until in July 2020 when it spiked up over $28/oz.
• There is a small chance of the government or governments declaring silver a “strategic metal” and trying to confiscate it. I don’t think that it is likely or would likely be successful and wouldn’t happen until there was an actual physical shortage. But it is something to watch out for.
  • Gold and silver are traded internationally and if USG tries to confiscate it will just make these commodities more valuable.
  • I think if there is confiscation it will be mainly to get silver. Silver could be declared a “strategic metal” which it is and is needed for electronics and military equipment.
  • I think physical metal under your control would still be relatively safe, but if the USG wants/needs it hopefully they will at least pay a fair price.
• Having physical silver under your direct control is the safest, but other methods may produce better returns and probably more risks and volatility.
• There is an Exchange Traded Fund (ETF) for silver with the symbol SLV. Basically, a share of this is an ounce of silver (less accumulated fees). Currently, there are 326M oz. in this ETF.
  • Advantages of SLV are:
    • Can be traded thru most any brokerage account including most retirement accounts (you may have to sign additional notifications)
    • Has physical silver backing most shares. There has been some shorting of the stock, but that has been fairly minimal and consistent for the last few years.
  • Potential Risks of SLV are:
    • You don’t have the silver under your direct control.
    • BlackRock, Inc. is the SLV sponsor, JPM is the SLV custodian. I’ve seen many comments and questions about JPM being the custodian and the potential for them to somehow use that position to their trading advantage. I haven’t seen any reported abuses, but something to keep an eye on.
• Physical silver typically does have a fairly large premium. At your local coin shop you can pay $2 -$4 premium on a Silver Eagle. A 10 or 100 oz. bar may have a smaller premium. While this premium is definitely a deterrent to trading silver as a short term investment, I don’t think it is for long term investment.
• At some point the price could get into a bubble situation, but I don’t think that will happen until $100/oz. or more.
• If the COMEX trading got too wild, I could see COMEX halting trading on silver. Hopefully, we would get some prior indication that might happen, but if it does it should be bullish for physical silver and could be very negative for “paper” silver.