Since the internet became awash with silver squeeze hashtags and the Wallstreetbets attempt at a short squeeze (later denied by the group who claimed no responsibility) silver has gained a lot of headline news. So why, out of all the stocks, commodities and cryptos in the world is there such a focus on silver?
Let me put to you this way: Gold and silver are produced in their virgin form through mining. The long traded gold to silver ratio stands at roughly 68:1 at current levels, yet mined it is 8:1. If these very basic fundamentals are used then at current levels silver should be around $225. If adjusted for inflation, you could be looking at three times that figure. So why isn’t it? The answer runs a lot deeper than the ratios.
Before I proffer a reason for the initial question, let’s look at some facts. Gold’s little sister hit its all time price high of $49.45 in 1980 over 40 years ago. At the same time, gold was at one of its previous highs of $850 making the ratio roughly 17:1. Inflation at this time was 13.5% in the US. Back in March 2020 when the Covid crash occurred and silver hit its lows, the ratio was a record high of roughly 111:1. When gold hit its record high last year, if we took that 1:17 ratio silver would have been around $122. So silver, as I’m sure we all know by now, is more volatile than gold. The principle reason for this is through silver’s double edged sword appeal.
Gold for years has been synonymous with the safe haven asset. However the use of the term “safe haven” whilst adorned as a badge of honour to gold and to a certain lesser extent silver, is starting to wane. Given all the events of the last year and a half, the only time gold has acted as a safe haven was when the oil fields in Saudi were bombed. Investors panicked and ploughed money into it, and the gold price shot up, only for it to be brought back down to Earth fairly quickly when the panic dissipated.
Gold is a store of wealth, it doesn’t pay interest nor dividends and is used by investors chiefly as a hedge against inflation. It is an investment that costs money to hold (depending where it is stored) however will thrive in the right macro environment. If interest rates are low you don’t immediately turn to gold as this tends to springboard a more” risk on” environment as money is cheaper for the higher yielding riskier asset classes. In the Covid crash gold acted as a store of wealth and the price tanked as investors dashed for cash and liquidated positions. Silver on the other hand takes the majority of gold’s attractive fundamentals (as well as negatives) yet also benefits from its modern day primary driver – industrial demand.
Since President Biden took the world’s most powerful seat, silver bugs have been overwhelmed with excitement. What Biden has pledged to do should propel silver price significantly higher (and to a certain extent, gold as well) The Green Deal is a major bullish signal for silver due to its use in solar panels, electronics and batteries amongst many other things. Estimates are around 3KG of silver are used per Tesla (NASDAQ:TSLA), so with the EV market and Green Deal taking off, the price of silver should only go one way.
With any commodity however, the price is reflected in the supply and demand balance. Demand for the white metal is currently at an 8 year high, and with mines closed earlier in the year due to Covid and in general at lower levels since the high a decade ago, the balance is truly starting to tighten. Silver was in the cross hairs at $25 when the Reddit crowd starting posting about taking the price to an inflation adjusted $1000 per ounce. When silver crossed the $30 level only to be smashed back down again it actually opened a lot of people’s eyes to how cheap, useful and undervalued it is and investors started buying physical. Suddenly premiums went through the roof, dealers across the globe reported shortages and out of nowhere the interest in the white metal skyrocketed.
So back to the original question, given all the fundamentals above, why isn’t silver much, much higher in price than it is? The simple answer is the price has been manipulated for years; but don’t be downhearted by this as the recent $30 level being smashed down again is both a major event and massive own goal by the banks. Why? It is the smoking gun.
A graph for (SLV) the well known ETF emerged soon after the failed silver squeeze showing the price v volume during the time period and it is as clear as day follows night that the volume spikes did not correspond with a price increase. In fact, it shows huge divergence. This graph has been thrown around the internet by many precious metals experts that quite rightly feel aggrieved about how the manipulation is still going on. Don’t get me wrong, this retail investor battle against the big boys was never going to end well purely down to the market cap of silver being over 1000 times the size of GameStop (NYSE:GME). It was also a great opportunity for the big boys to flex their shorting keyboards while they stack at lower prices. Now I have nothing against shorting as a principle. It is an approved, used and necessary way of market price stabilising. Naked shorting (as proven above) and spoofing however isn’t. It is illegal.
JPMorgan (NYSE:JPM) have accumulated a reported 600 million oz over recent years. If we are to believe what the internet reports, they dumped the majority of their short positions on Silver when the price hit the lows of just over $11 per ounce in March 2020. If they did, and no longer hold short positions (which recently has proved they still do) then no organisation on the planet is better placed for the silver price to go higher, putting to one side the well documented legality of how they achieved it of course. This has been no accident.
It is widely believed that there are eight big players holding enormous, highly likely naked short positions in Silver. It is incredibly difficult – if not impossible – for the physical to be there when you consider the number of contracts of these short positions. The world is now more aware of this than ever before. There are lawsuits out against some of these players, and with the supply dwindling, and the background noise I wouldn’t be surprised to see panic buying and stockpiling from some of the big industrial players that are worried about shortfalls in supply. Can you imagine Elon Musk having to hold back on the latest model release, or Apple (NASDAQ:AAPL) having to delay their new handset?
It appears the elastic band is stretched so far it is only a matter of time before it snaps. The average investor now has silver firmly on their radar and we can thank the Reddit crowd for that – even if they aren’t taking the credit. There are some big voices now involved in what has turned into a movement against the banks. People are fed up with the relentless crimes on the silver market that do not get sufficient punishment. Investors are stacking physical and supply is dwindling fast. The downside risk seems limited as the $27 has been attacked several times in the last week yet never breached on a daily close. Support looks strong all the way down to $22 where we have seen major support in sell offs. Silver has diverged from gold. The only threat to a major drop in price is a stock market collapse where both of the monetary metals could have positions liquidated, however given the fundamentals outlined in this article, I couldn’t see silver lasting long at sub $25.
The silver squeeze isn’t over, it is just getting started. To what level? We shall wait and see, however I would suggest seeing $50 this year wouldn’t be beyond the realms of possibility. Once the shorts are fully unwound and we get more of an idea of the supply and demand balance, three figures is the next obvious target. Couple this with the inflation expectations courtesy of the Fed’s printing machines and that could arrive as early as 2022. The upside potential for the little sister of gold is huge. This giant may soon be awoken. Keep stacking your physical silver.