Notes From Underground: A Silver Lining In the Madness?

My inbox has been filled with theories (read: concerns) about the targeting of short silver positions by the REDDIT BRIGADE of financial vigilantes. Is this a possibility? In my opinion, YES, as silver has been a very volatile market since the trade dislocations perpetuated by the COVID pandemic. The metals are not like equities because hedgers — miners with real supply — act to keep a lid on prices as they lock in future costs.

The problems for the hedgers are always the same that were experienced by cash dealers when BUNKER HUNT and his posse attempted to corner the market back in 1979-80. When hedgers/dealers are short against existing inventory the MARGIN calls payable to the clearing houses can cause serious pain. In 1980, Mocatta Metals and others were almost bankrupted by margin calls and this will not be repeated as easily because INTEREST RATES are near ZERO for credible borrowers, unlike when they were rising to double digits in 1980. The ability to carry the shorts is more doable by cost of carry but will be EXPOSED IS THE FEAR OF A GENUINE SHORTAGE IN SILVER AS HAS BEEN SUSPECTED BY MANY TRADERS OVER THE LAST FEW YEARS.

WATCH FOR THE 200-MONTH MOVING AVERAGE OF THE GOLD/SILVER RATIO at 65.96. It closed on Friday at 68.22, the lowest close in FOUR YEARS. LOOK FOR A RISE ON THE OPENING SUNDAY NIGHT AS THE TWITTER WORLD IS ABUZZ WITH A FEAR OF A PHYSICAL SHORTAGE. But the hedge funds are probably long SILVER, WHILE AS PETER BOOCKVAR AND I HAVE DISCUSSED, THE COMMERCIALS ARE SHORT.

TRADE IT BUT WATCH FOR PLATINUM AS A POTENTIAL UPSIDE BECAUSE IT HAS BEEN SHORTED BY MANY AS A HEDGE AGAINST THE OTHER PRECIOUS METALS AS THE PLATINUM/GOLD SPREAD REVEALS. PL/GOLD closed at -$766 while its 200-month moving average is a POSITIVE $498 so that gives you perspective as to where the metals market are at. Platinum, like silver,has been in deficit of late as demand has out-stripped supply according to metals dealers at KITCO.

Something else to watch. There was a BLOOMBERG article  published January 12 that showed the Russian Central Bank “FOR THE FIRST TIME HOLDS MORE GOLD THAN U.S. DOLLARS IN $583 billion reserves.” The story notes that “gold made up 23% of the central bank’s stockpile” and the “share of dollar assets dropped to 22%, down from more than 40% in 2018.”

Imagine if the REDDIT crowd gets assistance in its efforts from some of the world’s central banks. Wall Street is being challenged by some dynamic forces. Be static at your risk but trade it, don’t invest it.

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15 Responses to “Notes From Underground: A Silver Lining In the Madness?”

  1. ShockedToFindGambling Says:

    Didn’t RobinHood restrict buying of SLV to 1 share?

  2. RADM.Yamaguchi Says:

    Hi Yra, It’s great to see you addressing this issue. Most of your readers seem reluctant to address any market without referring to what this or that central bank will do. As i commented last week, this attention to the silver market could be a lot of fun. What a great time to be alive. Might we being witnessing the beginning of the end of the disaster that central banking has been? I think so!

  3. ShockedToFindGambling Says:

    https://investorplace.com/2021/01/robinhood-bans-reddit-stocks-wallstreetbets-gme-cciv-sndl-jagx-amc-nok-bb/

  4. Michael Temple Says:

    Yra
    Trying to rationalize “irrational” markets is a tough thing to do.

    GME is trading NOT on fundamentals but on FEAR as the shorts have been eviscerated. Melvin Capital down 53% in January, and apparently that is AFTER its bailout from Citadel and Point72.

    Silver market seems to be soon headed into that vortex. Weekend futures indicate a $1.60 rise.
    Of even greater concern for the shorts is the appearance now of somewhat famous Twitterati joining #Silversqueeze meme.

    Ordinarily, I would never take note of who is tweeting what about markets. But, just this weekend, Cameron Winklevoss (he of Facebook and BTC fame) is highlighting the squeeze action in silver.

    Imagine if he should tweet out that he is swapping some BTC for silver. Or, maybe he tweets that silver is another way to “rage” against the system, just like BTC.

    I know it is silly, but I wouldn’t rule out a random appearance from Elon.

    Your platinum thoughts are compelling. But, platinum ain’t going anywhere big without silver first busting out. That Gold/Silver breakout has a lot of pent up energy to expel if it breaks that 200 month Moving Average.

    With weekend futures indicating a 6% up move in silver, it is possible that the Gold/Silver ratio hits 65 tomorrow.

    Also, keep an eye on SIH/K spread. Backwardation would indicate stress among the “shorts”

    If so, CME warehouse inventories could be vulnerable to delivery risk at the end of February

  5. ShockedToFindGambling Says:

    Michael, where are you seeing the weekend futures prices?

  6. raymack1999 Says:

    excellent take Yra. I was thinking of Ole Bunker when all this started to happen. the high frequency guys love this!

  7. Kevin Says:

    Up until now the reddit WSB’s crowd have been pushing the equity rubbish, relying on short interest and call option gamma trades to deliver the squeeze. Hard for anyone else to join the party when the prices are so divorced from fundamental value.

    Silver is a different beast, value is in the eye of the beholder. Watch out for the many market participants willing to climb on board, it could be explosive. Check your leverage though if you are either long or short, the brokers will raise margin!

  8. Financial Repression Authority Says:

    […] LINK HERE to the Blog Post […]

  9. Richard H Papp Says:

    Right on Kevin. In the Hunt situation, if i remember correctly, margin was raised to 100%. I remember Jim Sinclair was in charge of liquidating the remainder of the Hunt holdings. Yra, i also remember that yu had a relationship with Jim in the 1970’s, perhaps yu can fill us all in on the particulars!

    • Yra Says:

      Richard–Jim thru the Hunts out because he warned that they were destroying the market and wanted no part of it.The Hunts ran out of money and once the prices began to fall nobody would lend them as they almost bankrupted Bache and possibly Shearson as the losses piled up.There is a great deal more to it but the cost of borrowing played a critical role on both sides and because they almost ruined the cash traders there was no love lost once the positions turned–hence Jim’s warning was realized

  10. Richard H Papp Says:

    Thanks Yra. Since i live in Westchester County, NY i am watching the snow fall with a NWS forecast of 21 inches.

  11. ShockedToFindGambling Says:

    I think Silver hedgers (sellers) have many multiples the trading power of Reddit traders…….especially since RobinHood traders are limited to buying 1 share of SLV.

    Silver will only rally if the fundamentals are bullish.

    You need big institutional/investment buying to have a good Silver rally, IMO

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