In Jim Cook's Archive


The London Bullion Market Association (LBMA), a trade association for 150 gold and silver refiners, dealers and traders recently came out with a report on silver entitled, Silver Investment 2021. I’ve never seen a publication from them before, let alone one that dwells on current and recent events in silver. The last thing I would expect from them is their explanation of what’s causing tightness in silver coin and bar availability or any mention of Reddit. Are they prepping us for a future silver shortage? They seem to be denying the possibility of a short squeeze in silver. Why come out with that now? Much of it is solid reporting, but they are way too dismissive on the possibility of any future problems for the shorts. I’ve excerpted a few paragraphs.

“The past 12-18 months have witnessed some incredible developments in the silver investment market, including a dramatic improvement in investor activity. The combined value for exchange-traded products (ETPs), coin and bar demand and net managed money positioning have risen by around 20% to around $10 billion. Turning to early 2021, the growth in silver investment has undoubtedly carried over from last year. The much-publicized social media campaigns have translated into significant gains for silver ETPs and coin and bars demand.

“The events of late January/early February this year have almost become folklore in the silver market. It is worth recalling how this emerged and its impact on retail buying even after the social media storm faded. When the Reddit-inspired focus on GameStop in the U.S. emerged there was initially no indication it would spill over into silver. Retail investors believed GameStop was undervalued, citing massive short positions held by hedge funds as evidence that its share price was being suppressed. Users of Reddit and other social media platforms argued that if sufficient investors bought the stock and could drive up its share price, this would force shorts to be covered, and so drive up the price. The strategy was incredibly successful, sending the price from less than $20 in mid-January to a peak of $483 in just one and a half weeks. Although some of these gains were unsustainable, at end-March GameStop shares were still trading around $190.

“Buoyed by this success, social media discussions soon focused on silver, and in particular long-held conspiracies that financial institutions were holding significant short positions. For many, the resemblance to GameStop was all too apparent, albeit erroneous. Buying of silver bars, coins and exchange-traded products (ETPs) quickly ramped up. However, it was not long before product shortages started to emerge. This was largely predictable for several reasons. First, flight restrictions meant it was often difficult to quickly move coins and bars to where they were needed. Second, many dealer stocks were quickly depleted.

“This was by no means the end for silver retail demand. As the social media frenzy was picked up by the mainstream media, silver benefited from widespread news coverage, particularly in the U.S. Importantly, the rationale for a ‘short squeeze’ appears to have carried little weight. Concerns about the Biden administration and especially its stimulus measures were reported to have resonated with retail buyers.

“As dealer inventories were depleted the emphasis shifted to silver coin and bar manufactures. Although many fabricators quickly ramped up production, three issues emerged. First, social distancing and other lockdown restrictions affected how much they could respond to the jump in demand. Second, the increase in retail sales was so great that delivery lead times grew. These factors added to concerns about a shortage of silver, which further boosted sales. Finally, the U.S. Mint will switch this year to a new design for the gold and silver Eagle coins (the Buffalo and Platinum Eagle are unaffected). Although the launch date is still to be confirmed, the U.S. Mint will now switch production over to the new design and therefore scale back minting of the current Eagles.

“Given that the U.S. Mint dominates retail precious metals demand in the U.S. this change is already having a pronounced effect on the market. As a result, February and March 2021 have seen retail silver investment demand remain exceptionally strong in the U.S. That said, demand can be quite volatile, so it is difficult to predict if this upside will continue and for how long.”

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