First off, if you are long GME this is not a post to tell you to sell GME.
GME sequence of events (yes the game was rigged we retail traders got screwed):
GME is way over shorted > brokers allowed this > squeeze happens, hedge fund lose tons of money and face insolvency > Citadel gives $3 billion to Melvin Capital, despite the fact they are supposed to be a neutral market maker > price keeps surging > Melvin faces insolvency and will lose Citadel’s investment, Citadel is no longer a neutral player > clearinghouses get leaned on by powerful suits to raise margin requirements on GME > brokers will have to make up the losses of the shorts they allowed to occur > they decide to save their own skin at the expense of their clients and rig the trade > instead of going to thousands per share as IBKR ceo admitted it would have, retail is robbed of billions in gains
Now on to the silver post
This is a very long post, so I apologize to the WSB apes who can barely read and will have to scroll a long way to get to the TLDR. Its also been impossible to post about silver lately on WSB (no posts approved, thanks to the mod who assisted this one), so I crammed about 3-4 posts worth into this one. Not sure when I’ll be allowed to post again.
I’ve organized this post into 4 sections so feel free to skip around to the parts you are interested in.
- The silver short squeeze evidence
- Why the ‘hedge funds are pushing silver’ narrative is BS
- The fundamental case for silver, and why the shorts deserve to be squeezed
- TLDR, what to buy if you want to go long silver
Since my initial post on the potential for a silver short squeeze, I have been researching the topic to prepare a more detailed and substantiated update post. This is my latest attempt to post, and hopefully this one gets to stay up (silver censorship has been a thing here lately)
1. The potential for a short squeeze (573% of the ‘float’ is currently sold short)
The big thing to remember here is that if enough market participants who are long silver contracts in the futures market begin to demand delivery of their silver, there will absolutely be a meltup in the price because there simply isn’t enough supply available.
The next 3 trading days are critical, and there is war being waged. The shorts and COMEX are in a fight for their lives, and barely hanging on by a thread
Many big name precious metals veterans have bemoaned for years about how the size of the ‘paper’ silver market absolutely dwarfs the amount of silver that could be delivered, and thus the market is manipulated. The vast majority of futures and options contracts in the silver market have historically been settled via cash. Meaning no physical silver is actually delivered when these contracts are set to expire. This is where the talk of the 100-1 and 250-1 paper silver to physical silver ratios comes from, but short interest is actually more like 6-1 on the COMEX using open interest data through the next two big delivery months.
Technically every month is eligible for deliveries, but only months with options interest tend to have any real volume, and that’s why they are known as delivery months. March and May are options expiration months, while April is not.
If you want to think about it like a stock, the short interest is 573% of the ‘float’. This is based on the fact that over the next 3 months there are futures contracts and options which have the right to take delivery of 847 million ounces of silver. This is compared to only 147 million ounces registered on the COMEX that could fulfil these deliveries. For perspective, GME short interest peaked at around 140% of its float, and that was considered crazy high. It is widely known that if a small, but significant share of long silver contract holders took delivery, that there would not be enough silver, as the demand would cascade higher and higher as the prices rise.
This would be similar to a bank run scenario. The COMEX is the silver bank, and they have printed too many paper claims on a limited amount of silver. If there is no actual silver left to be delivered to the holders of the futures contracts, that means that means that the COMEX would default and settle their contracts in cash. No one wants to get settled in cash if the COMEX had to default. This would mean that right as you want to be able to stay long silver, as the price is surging higher, that you will get forced out and paid cash instead of silver and wouldn’t benefit from future increases in the price. The traders who want to stay long silver and who see the run occurring would try to take delivery because if you actually have physical silver in your vault then it doesn’t matter if the COMEX goes down, you still have your actual silver you can sell on the spot market. Most importantly to them, they get to keep participating in the upside.
Now the shorts are very much trying to keep the price down at the moment, because their problems get worse as the price rises and more options become in the money. See the chart below, with a handy arrow to illustrate where we are currently in terms of March open interest.
As the price rises more and more, the short interest grows as more options on futures contracts become ‘in the money’, compounding problems for the shorts. This is the silver version of a gamma squeeze.
The chart below shows the number of ounces that would be eligible for delivery over the next 3 months, given the current open interest data. Most of the open interest comes from futures contracts that aren’t dependent on price, but I’ve made this chart to illustrate how the problems get worse for the shorts due to the options contracts as the price rises. The latest silver price as I’m writing this is $27.37.
But why would contract holders all of a sudden start to demand delivery when cash settlement has historically been the norm? A couple of reasons.
The first reason is arbitrage. Premiums on 1000oz bars have surged to somewhere between $1 and $2 an ounce (this is unheard of on the 1000oz commercial bars), meaning that traders can stand for delivery and then sell in the physical market for immediate profit. When supply had become constrained in previous silver bull markets these premiums were more like 30 cents an ounce.
In addition, mints are also interested in arbitrage. They could begin to take delivery to break down 1000oz commercial bars into smaller units which currently trade at historic premiums of $5-$8 an ounce. The small unit silver market has experienced greater demand than ever before. The entire stock of small unit silver was sold out at all dealers a few weeks ago. The small amounts they do get in stock are only sold at massive premiums.
The second reason traders may take delivery is because they see the massive opportunity presenting itself right now, and they don’t want to be cash settled when the COMEX defaults. They see that the squeeze is possible and that they profit massively by simply taking delivery, sitting on their silver while the squeeze happens, and then reselling it at much higher prices. Early rumblings of massively increased delivery volume is already presenting itself in the data. See the chart below showing the past 3 months of deliveries compared with the same time period in previous years
Note that this chart corresponds with December of the previous year through February of the year that is labeled on the x-axis. So 2016 actually represents December of 2015 through February of 2016.
It seems that the silver futures market is suddenly becoming a place where silver actually gets delivered in meaningful quantities. This trend is even more pronounced when you look at just the most recent month of February, which like April was not an options expiration month, and thus typically has very low volume. Even still, the increased interest in taking delivery of silver from the COMEX is very clear. And historic at that.
February 2021 has had 9.95 million ounces delivered through 2-18, and there is still 1.83 million ounces in open interest. Anyone still sitting in a contract this late in the month wants delivery, so we can safely assume Feb. deliveries will end above 11 million, and closer to 12 million. This is compared with an average of only 2.20 million ounces delivered in the previous 3 Februaries. An increase of roughly 422% (assuming 11.5 million delivered).
March is gearing up to potentially be an earth shattering month for delivery requests that could send silver soaring. March in the previous 3 years has averaged 26.79 million ounces delivered. If this year’s month of March experienced the same 422% increase in deliveries that occurred in February, that would represent ~140 million ounces delivered. Enough to completely drain the COMEX registered stocks. If typical contract roll-forward behavior persists, we are actually on track to hit around that number. The chart below shows how March is on track to finish the month with between 30-40k contracts demanding delivery (each contract represents 5,000 oz). Chart is courtesy of u/Ditch_the_DeepState who does an awesome job with these.
The final day to roll contracts forward to not be eligible for March delivery is Wednesday, February 24th. Given these are not normal times in terms of deliveries, it would not surprise me to see the decline for OI in March flatten out and stun the world by finishing with 40k contracts awaiting delivery. The COMEX only has registered stocks to cover 29.4k.
And let’s say the COMEX survives March and is able to meet all the delivery requests, this is what the May open interest looks like. Can you imagine the COMEX going into May with only 20 or 30 million registered ounces staring down the barrel of 450+ million ounces of open interest (and this figure will rise once March passes and/or the price rise causes more call options to be ITM). At this point the long in May would absolutely stand for delivery and hope they are one of the lucky few who aren’t force settled in Cash.
So even if only half or three-fourths of the 147 million available ounces are delivered, the May contract holders will see that the available supply is shrinking fast, creating even more demand for physical delivery because the opportunity is that much more clear for a continued short squeeze. That and the fact that there are longs who really do want the silver for various reasons, and would be worried that the COMEX will default and there will be no silver available for delivery at all.
This is where critics of the potential for a short squeeze may point out that if the COMEX starts to run out of silver, they will just find more. This is increasingly not an option however. The primary stores of 1000oz bars are the LBMA vaults in London, and the COMEX. When the COMEX starts experiencing high demand for gold or silver deliveries (typically due to the existence of premiums between paper and physical and a phenomenon known as backwardation), traders start chartering planes to deliver excess metal from the LBMA to the COMEX. This occurred in March and April for gold and silver when physical started trading at premiums and traders began to demand delivery.
The problem with this line of thought is that nearly all of the silver in the LBMA is effectively allocated already. The most common silver ETFs such as SLV use the LBMA silver vaults to allocate silver to their ETFs, and recent historic inflows to these ETFs has created a situation where the LBMA simply does not have unallocated supply that they will be able to ship to the COMEX. Bullionstar.com recently ran an article showing that 85% of the silver in the LBMA was now held by silver ETFs that utilize the LBMA stores. This means that this Silver cannot be taken from the LBMA to reinforce the registered stocks of the COMEX.
Also notice how last spring/summer is when LBMA inventory (shown in green) dropped, which aligns with when the silver price surged and increased COMEX deliveries were happening (2020 was a record year for deliveries).
The LMBA is estimated to contain 1.08 billion ounces of silver. Meaning that 162 million ounces aren’t already allocated to ETFs. Not known though, is how much of this 162 million ounces is owned by wealthy individuals and family offices who already have a claim to it. Indeed, the supply situation at the LBMA is dire enough that the worlds largest silver ETF, SLV, had to change it’s prospectus to mention that they may not be able to find silver to allocate to their ETF in the near future. They made this change on 2/3 following historic inflows, but didn’t make the document public until 2/8 for some reason. Nor did they announce the change.
Another decently sized silver ETF that I can’t mention also changed their prospectus and directly mentioned that there might be a short squeeze and actually seems to sympathize with the hedge funds who would potentially be ‘hurt’ in the process
So why did JPM feel the need to downgrade silver just as it started to spike, why did the CFTC feel the need to raise margin requirements the very same day, and why did Goldman feel the need to publish an article saying the squeeze was impossible, also on the same day? They are terrified the squeeze of the naked shorts in the silver market might actually happen. Just as the ETFs are now warning in their prospectuses.
The report from Goldman made the ludicrous claim that each member of WSB would need to purchase 4,200 ounces of silver to cause a squeeze. Assuming approximately 8 million members at the time, that’s roughly 33.6 billion ounces of silver, and at $27.37 an ounce, would represent $920 billion worth of silver.
There is a myth that the silver market is as large as $1.5 trillion in total, which is probably where Jeff Currie from Goldman somehow came up with this $920 billion figure. This is a vast overstatement of the available investment grade silver. These figures represent the grand total of all silver that has ever been mined in the history of the world. The overwhelming majority of this silver has been used in the production of various electronics, medical devices, and other products and simply cannot be recovered. Maybe at $500 an ounce, dumps will begin to look for phones and other electronics and try to chemically separate the miniscule amounts of silver from each device, but at $27 an ounce this is completely unrealistic. Even then, it would be a minimum 6 months to get silver recycled from these devices and into the 1000oz bar format that is required for the futures market.
If you look at various sources (google it), most of them estimate the entire quantity of investable silver in the world is somewhere between 2.8 and 4 billion ounces if you include the small denominations of silver (which can’t be used to deliver on the COMEX). Using the high end estimate at 4 billion ounces, this would mean the entire investment grade silver market is only valued at $109 billion. The futures market only deals with 1000oz bars of which there is estimated to only be 2 billion ounces worth.
There are only 0.36 to 0.52 investment grade ounces of silver per person in the world if you include both the small denominations and the 1000oz bars together. At $27.37 an ounce this is only $9.85 to $14.23 worth of investment grade silver per person. Go take a stroll through some of the silver forums on reddit and you’ll see people are buying 6 figures worth regularly right now.
The allocated and unallocated silver in the LBMA and COMEX in total is roughly 1.5 billion ounces, which is a far cry from the 33.6 billion that Goldman is referring to. As I have mentioned, most of this 1.5 billion ounces is already allocated to owners as well.
Think about 2 billion ounces worth of silver in 1000oz format. That is a tiny, tiny number. At current prices it represents $55 billion. There are only 2 million 1000oz bars, and each one costs roughly $27,710.
There is another asset that has been in the news recently that is over 55k in price (WSB bans mentioning it, I’m not trying to pump it, just use it for an example). There are only ~21 million of these items that will ever be mined, and they are valued for their scarcity and deflationary tendency. For every ten of these things which shall not be named there is only one 1000oz commercial silver bar, and each bar costs roughly half of what 1 of the things that shall not be named costs.
To say that silver could not have an epic surge in the same way, despite being 10x more scarce, and half the price at that, is ludicrous. Silver is used in production of actual real things and the supply over a long enough period will actually be entirely exhausted unless we figure out how to economically mine asteroids (which would only be economical at silver prices far beyond what’s ever been achieved).
As part of my research for this post I was actually able to get in touch with silver industry veteran, David Morgan (thanks for answering a random guy’s twitter DM David). He told me an anecdote from back in the previous run-up during 2010-11 where he had a conversation with Eric Sprott who mentioned that Sprott Inc’s purchase of just 22 million commercial ounces to start their ETF of PSLV was enough to drive up the price by over $2 an ounce. Unlike the other silver ETFs which just allocate silver off of the LBMA, PSLV actually sources silver in the open market to add to their vaults, which is why investing in PSLV can actually cause the silver price to rise much more directly than the other ETFs.
So who is on the other side of this trade? Banks and large hedge funds, who are massively net short silver, to the tune of 91,468 contracts sold short compared with only 16,071 contracts long. The banks are trying to make sure the price stays low so that they can discourage run ups in the price that would create a short squeeze (and cause them to experience massive losses on their naked short positions).
If you want more proof that these markets are historically manipulated look at the fines JPM had to pay recently. Which brings me to part 2.
2. Why the ‘hedge funds are pushing silver’ narrative is BS
Several posts have documented the timeline of Silver posts on WSB and why the narrative of hedge funds pushing silver to hurt GME doesn’t really make sense.
Besides the fact that many on WSB were fans of silver long before the GME craze (including myself), banks have a massive net short position in silver (which I cover later in this post). At the time the anti-silver post went viral about Citadel having a large position in SLV, it comprised only 0.04% of their AUM, and they actually had 3 times this amount, 0.13% of AUM, in PUTS ON SLV. Proof. So it doesn’t make sense for them to try and stop one short squeeze that hurts them by causing a second short squeeze that would also hurt them.
I’m not sure if hedge fund bots were actually driving the anti-silver propaganda, or if it just caught on because people wanted a scapegoat for the GME losses, but either way it seems like silver was in the wrong place at the wrong time. The people investing in silver, and the people investing in GME are natural allies. Its a mix of a desire for tendies and giving big banks and hedge funds the finger.
Why weren’t AMC, BB, NOK, weed stocks, and many other popular positions not considered distractions from GME? Wouldn’t GME have gone much higher if everyone on WSB had stuck to only GME and not these other plays?
There was absolutely institutional collusion to prevent GME from getting the infinity squeeze it was set up to get. The interactive brokers CEO even said on live TV that “the price was headed to infinity” if they hadn’t stepped in to “stop the losses”.
This collusion is simply unrelated to the fact that some of us on WSB also like the silver market setup. I totally agree that media reports of WSB ‘moving to silver’ were somewhat poorly worded. Just as the reports of WSB moving to weed stocks were poorly worded. Some people on WSB are playing silver, some are playing weed stocks, but these headlines make it sound like it’s everyone when it’s never true that all of WSB is long a single trade (GME may have been close though). I understand frustration about poor reporting. Please don’t take it out on your fellow WSB apes though.
And if you are still holding GME and think it can squeeze again, I respect that and I still hope it goes to $1,000 and higher.
3. The fundamental case for silver, and why the shorts deserve to be squeezed
First of all, as previously mentioned, the short side of the equation is almost entirely made up of banks and hedge funds, so keep that in mind when you might have sympathy for the shorts here.
Second, the demonetization of silver was used as a blunt instrument to impoverish the populace, and enrich the wealthy and bankers all the way back in 1873. We know that wealth is generational, so if you had family living in the United States prior to 1873, and they were not wealthy, it is highly likely that they were massively impoverished by banker related corruption at the time. Here’s a quick rundown of what happened:
Originally both gold and silver were considered legal tender in the United States.
The monetary base was roughly half comprised of gold and half comprised of silver, with a fixed exchange rate of 15 ounces of silver to one ounce of gold. Because silver was more common, it was considered the common currency of exchange with gold only being used by the wealthy in large transactions.
In 1873 a bill was signed to demonetize silver, while keeping gold as legal tender.
All of the common people had their savings in silver which became increasingly worth less relative to gold, while all of the wealthy had their savings in gold, so the value of their savings appreciated.
In line with the removal of 50% of the monetary base, we experienced roughly 50% deflation over the next few decades.
Along with this deflation though, the value of debt also rose. So if you were poor, and also likely indebted, with one stroke of a pen your money began to become worthless while at the same time your debt became progressively worth more due to deflation. If you were a wealthy gold owner, or a bank, you likely owned that debt that became worth more alongside the gold you already held. A double win for the wealthy, and a double hit for the poor. One stroke of a pen created generational wealth for some, and generational poverty for others.
Yet another reason squeezing silver, with banks on the other side of the trade would be true cosmic justice.
Fundamentally, there are plenty of reasons why silver demand long term will rise. On the industrial demand side, silver is used in solar panels, electric vehicles, other electronics of all kinds, and expensive space related items, where getting 100% electricity conduction is worth it compared with the second best metal of copper at 97%. These industries are expected to grow quickly in the next decade and more silver will be needed for this reason.
Monetarily, the money supply is expanding at historic rates and most of the ‘smartest people in the room’ are calling for higher inflation in the next few years. Pretty much every commodity except gold and silver have been on an absolute tear the last few months and they are breaking out into what most consider multi-year bull market cycles. This will drive inflation even further.
Silver is more common than gold but spread rather thin in the earth’s crust so it isn’t mined directly in large quantities. It’s more typically a byproduct of mining for other raw materials. The lack of dedicated silver mines means that silver today is mined at only an 8-1 ratio to gold despite naturally occurring at roughly 18.75-1 ratio. Silver is currently trading at a 66-1 ratio to gold, and gold hasn’t even been rising lately. In the 2010-2011 run we got down to a 30-1 ratio, and if people begin to worry about inflation and consider silver a monetary hedge, there’s nothing stopping silver from getting to its natural ratio of 18.75-1 or even lower considering the industrial demand combined with the lower 8-1 production ratio.
These lower ratios combined with higher gold prices in the future mean that silver can realistically get above $50 in short order, possibly even above $100, and if you think the monetary system is really headed downhill, even up to the outrageous forecasts of $500+ from the likes of Patrick Karim on twitter. Note that Patrick posts various charts all the time and his most recent forecast is $182 silver by 2023. Love your charts Patrick (give this man a follow).
In terms of timing this thing, look at the only other 3 times silver went into backwardation in the past decade (we’ve just entered the 4th time). Every single time it had a powerful rally afterwards, because it means that physical supply is constrained in the short run, and the shorts are trying to pay longs to get out of their contracts. And those other 3 times didn’t have a true chance of COMEX default like this time does, supply/demand has never been this imbalanced and the premiums in the physical market are proof of that.
In the end, the goal of buying silver should be to make tendies and to end the manipulation of these markets. We need to get to the point where entering into a contract to sell silver means you actually have the physical silver to sell. No more naked shorting and profiteering off the little people. An honest silver market is the ultimate goal here.
4. TLDR, what to buy
To get the most secure, best value for your dollar in terms of silver I would personally prioritize purchases in the following order (others may prioritize differently and that’s ok):
- Take delivery on the futures market if you are able (no premiums, but only available to large players)
- Purchase shares of the PSLV ETF who will then purchase 1000oz bars
- Purchase 1000oz bars at retail if you can find them for reasonable premiums
- Purchase smaller units of silver if the premiums come down to 15% or less. There are roughly 1-2 billion ounces of small unit silver in the world that don’t directly impact the 1000oz bar market, but demand for them does cause premiums to soar, which can then cause mints to purchase 1000oz bars to smelt into smaller pieces. This is also the preferred option for those who are concerned with the total collapse of the fiat monetary system and other doomsday scenarios. Personally I’m just wanting honest markets and to make tendies which is why this ranks 4th on my list.
- Purchase other silver ETFs such as SLV. Purchasing these will at least theoretically take silver off of the LBMA, but recent disclosures from these ETFs are making them seem less trustworthy (note that there is no definitive proof of any kind of fraud from these ETFs)
- Riskier Alternatives: Purchasing shares of silver miners, calls on silver miners, and even calls on the other silver ETFs are all riskier bets and potentially more profitable short term. This is likely what many here at WSB are going to do
Disclosure: I am long silver miners and silver ETFs at this time
Also disclosure: make your own choices, we are all individuals, this is my personal take on the silver market and it includes plenty of speculation and opinion. Treat this post as just that, some random guy’s opinion on the internet.
Update: To the people saying this ‘looks fishy’ because of the comment to upvote ratio or award to upvote ratio, its only that way because of the people exactly like yourself who auto-downvote anything related to silver, and really anything not GME. If this post had the same upvote ratio as my original post 3 weeks ago I’d legitimately have 5-10x the upvotes right now. And this post is far better and more deserving than my original one was. Its a self-fulfilling prophecy over here where a noob sees a non-GME post, downvotes it without reading, OG WSBers see a well thought out DD and give upvotes and awards, then more cultists come along and say it looks fishy. Try reading the post first!
You know what is super fishy? The fact that the WSB mod coup attempt occurred right when the anti-silver propaganda blew up and silver posts were banned after that as well. Ask yourself who was in charge when silver censorship started and you’ll realize what is actually fishy here.
Source : https://www.reddit.com/r/wallstreetbets/comments/lnzeho/the_silver_short_squeeze_is_glaringly_obvious_to/
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