There are a lot of unusual statistics in the silver market that rarely get discussed, let alone connected. Yet do nonetheless present a stunning picture of what almost necessarily will have to happen to the price of silver at some point.
I’ve written plenty about how a large unbacked paper short position has dominated the pricing of silver in recent years. And the latest evidence was last week’s guilty plea by a former J.P. Morgan Trader. Who confirmed that not only did he manipulate the price, but that it was somewhat well known and accepted practice within the bank.
So while trading far more paper silver than can ever be delivered is a scheme that can go on for quite a while, it always carries the exposed Achilles that if enough people demand physical metal at the same time, whoever is short all of that paper is going to get clobbered.
That alone is a risk I certainly wouldn’t want on my own balance sheet. Yet perhaps is even more risky when you’re talking about a market that’s already in a deficit.
“From a supply demand fundamental basis, we’re in a very unique place in the marketplace. And don’t forget that First Majestic is a member of the Silver Institute, and the Silver Institute does publish annual numbers. And these annual numbers show that the miners globally produced 800 million ounces of silver in 2017. And the same report shows that there’s a billion ounces of consumption. So that tells me there’s a 200 million ounce deficit.”
-Keith Neumeyer, CEO of First Majestic Silver
Now where that silver is coming from remains a bit of a mystery to most in the industry. But if I was an investor in one of the tech funds that has now assumed the majority of that short position that the banks for so long held, I sure wouldn’t be waiting until next week to make the phone call to get my money out of there.
Given how the real estate, stock, and bond market bubbles appear as if they have begun to pop, one can only wonder how long it will be before some of that money looks for the safe haven of gold and silver.
And what’s especially fascinating about silver is its relatively small size. Which makes it incredibly vulnerable to a short squeeze.
“The investment industry for silver is actually quite small. It only fluctuates between 10 and 15 percent of the market. So on an 800 million ounce market, it’s not a lot of ounces. The solar panel industry consumed 90 million ounces of silver in 2017, which was more than what the investment demand was.”
So if the deficit continues, and geopolitical or market chaos leads to even a minimal surge in physical investment demand, the price is simply going up. And probably by quite a lot.
For those who have been waiting for a while, and have wondered if it might be time to give up hope, perhaps the facts have never more clearly supported that the thesis you invested in is stronger and closer to manifestation than ever.
In many ways it’s amazing that it hasn’t occurred already. But just remember, if you realized that the housing market was in a bubble back in 2005, you weren’t incorrect. But rather just a little bit early.
A similar dynamic now exists in the silver market. And the combination of a yearly deficit and a lot of undeliverable paper just serves as the latest evidence of what must ultimately occur.
P.S. Have been getting a lot of great reader questions lately. So if you’d like to reach me, or are interested in buying or selling gold or silver, you can email me at firstname.lastname@example.org.
-Miles Franklin’s detailed report on why the price of silver is set to explode.