GREAT SILVER PRICE VOLITILITY AHEAD
This is the last thing Ted Butler wrote for us. He was trying to summarize what he saw happening in silver. His illness was making it difficult to write, but he did a good job of conveying his final thoughts.
Price volatility in silver has been heavy recently, but two conditions point to much greater price volatility ahead. Currently, bearish futures-market positions on the COMEX feature an unprecedented short position by a single managed-money trader of some 13,000 contracts (65 million ounces). This is combined with a heavy commercial short position. The short position by a big managed-money trader is particularly concerning since it is larger than what the largest silver mines produce in a year and is clearly not a hedged position, but purely speculative, appearing to violate speculative position limits. While bearish on its face, should this big short get caught in a squeeze, all heck could develop on the upside.
Much has been made about demand from China finally overwhelming the forces of price suppression from the COMEX, and while I don’t disagree with that, it hasn’t fully occurred yet. Certainly, if prices sell off in the short term, it will be due to COMEX price manipulation. Also, much has been made about silver recently setting new ten-year price highs, certainly a noteworthy accomplishment (and welcomed event). In fact, the recent new price highs illustrate the point I’m trying to make about the future tradeoff between short-term price volatility to the downside followed by much greater price volatility to the upside.
While, of course, the new ten-year highs were important, I would remind you that the last time silver hit $30 for the first time after a long time was in January 2011, only then some 30 years had elapsed since silver had been that high. After retreating back to $25 to $27 briefly, silver prices then went on a tear higher, nearly doubling over the next three months. That’s close to what I see ahead, although trying to project short-term price movements is a mug’s game. Pointing to much higher prices is the continuing and intensifying physical shortage, more obvious daily. Without question, the forces for sharply higher silver prices will prevail in the end, the only question is the short term. I’m betting the COMEX shorts succeed in rigging a selloff and then we go much higher on the shortage.
Most compelling are the signs emanating from the wholesale physical silver market. The recent physical daily movement in and out of the world’s silver ETFs is running millions of ounces, amid continued evidence of accelerating demand for solar cells, particularly from Asia. And considering the explosive growth in projected world electricity demand, thanks to Artificial Intelligence and computer data centers, it is impossible that silver – the best conductor of electricity – won’t be in increased demand. Everything suggests continued suppressed prices would increase demand even more than projected. It’s not guaranteed that the COMEX shorts will succeed in rigging prices lower ahead, but should they, it will set up an even stronger buying opportunity of wealth-creating proportions.
The past ten years was a decade without precedent in silver. Everything from JPMorgan accumulating a billion ounces of physical silver, then disposing of much of it, to the bank, essentially escaping serious charges from the Justice Department, to JPM tricking Bank of America into a billion-ounce short position. All while this was going on, the suppressed silver prices were having a profound effect on world supply and demand. Silver mine production fell, and industrial demand grew over the past decade – exactly as the law of supply and demand would dictate. This leaves the silver market not only in its most bullish set-up ever, but the most bullish set-up in any other market that comes to mind.