SILVER SHORT SQUEEZE
Sometimes the greatest investment stories go unrecognized. For example, most investors never give a second thought to procuring a cache of silver coins and bars. This despite the claims of some experts that silver is a grossly undervalued asset. Newsletter editor Theodore Butler, who writes a publication solely on silver claims that silver is the profit opportunity of a lifetime. He suggests that silver could go up ten times or more from here.
Mr. Butler bases his opinion on a number of bullish factors that apply only to silver. He claims that the price of silver is set through futures trading on the COMEX. Weekly government reports from the Commodity Futures Trading Commission (CFTC) reveal that 4 to 8 large banks and brokers have sold short many millions of ounces of silver. This concentrated short position has held the price of silver to artificially low levels for years. This shorting has been extremely profitable for these big short sellers. Only recently were the tables turned on the big shorts. Prices rose strongly for gold and silver and the short sellers were suddenly out $10 billion. If prices continue to rise, a possibility exists of a short squeeze that could propel the price of silver to much higher levels and crush the big shorts.
This vulnerable short position has attracted the attention of the recently famous short squeezers at REDDIT/Wall Street Silver. The silver apes, as they call themselves (after the Silverback Gorilla), now number 120,000 and they have been buying large quantities of silver bars, coins and silver exchange traded funds. Their goal is to drive the price of silver up to the point where the big eight short sellers must buy back the silver they have sold short in order to stem their losses. That would put the price of silver into the stratosphere. Mr. Butler, the world’s foremost silver expert, claims that being short silver today is dangerous beyond measure. He points to numerous additional reasons silver is poised to dramatically break out to the upside.
First of all, silver is an industrial metal and a superior conductor of electricity. It’s used in virtually everything that requires electricity such as cell phones and computers. It also has growing use in solar panels. Silver fits the requirements of green energy along with dozens of other industrial applications. Mr. Butler goes on to explain that silver is the only commodity with a dual demand profile. In other words, it has investment demand on top of industrial demand. Even a small increase in investment demand can bring on a shortage. Butler further believes that an inevitable shortage will cause the industrial users to hoard and stockpile silver no matter what the cost. They must have silver or go out of business. This will push the price up even further.
A large contingent of buyers purchase silver primarily as a hedge against inflation and economic crisis. Any worsening of inflation would likely lead to even more aggressive accumulations of silver coins and bars by investors. Currently, delays in filling orders and shortages have led to premiums on coins over their bullion value. Historically, for thousands of years the ratio of the gold price to the silver price was 16 to 1. This important ratio is now at 68 to 1. Some argue that this ratio must be restored based on the growing demand for physical silver. More importantly, the price suppression of silver on the futures market for so many years has led to greater usage by industry of this cheap commodity. Nobody has bothered to find a cheaper substitute. At the same time, the low price has discouraged construction of new silver mines and mined-out silver deposits have not been replaced. Three quarters of silver mine production comes as a byproduct to copper, lead and zinc mining so the production of silver cannot be easily ramped up.
The commodity futures market regulator, the CFTC, has been paying more attention to the precious metals market lately. They have worked with the Justice Department to charge silver traders at JPMorgan, HSBC, ScotiaMacotta and Deutsche Bank for illegal trading practices. Most were charged with spoofing, a market ploy where large sell orders are placed to drive down the price and then withdrawn before they are executed. Consequently, if the CFTC moves to force the end of the large manipulative short positions, that would also set the price of silver free. As with any investment, there are no guarantees that silver will skyrocket as Mr. Butler believes. Nevertheless, he has articulated a powerful argument that silver should be bought and held.