I warned you last week gold and silver bullion would become unavailable at some point this year.

It only took a couple of days.

February 1, 2021

Dear Fellow Investor,

Last week I reported on how the GameStop phenomenon would eventually move into gold and silver.

I was talking long-term, and noting how — unlike non-monetary commodities — a mania in metals can quickly develop and absorb all available supplies.

And I predicted that this was likely to happen at some point this year…but that the time to buy was now:

And so it has happened — in a flash — as it seems that all available silver bullion has been absorbed…just over the past weekend.

Bullion dealers are reporting their greatest demand ever and were forced to remove the bullion products as inventories were quickly depleted.

It’s an amazing transformation in the metals markets, and one I sensed was coming.

In our February issue of Gold Newsletter, published on Thursday, I talked about how I didn’t like the way gold and silver had been trading in January, but that I had the feeling some exogenous event was about to shift their fortune.

In fact, I noted, the rumors that silver was going to be the next target of the Reddit crowd raised the possibility that this would be that very event. But unlike others, I worried about what this would do to our bull market.

I’m still worried, but have to recognize that this is an amazing thing to witness.

#SilverSqueeze

The #SilverSqueeze hashtag began trending late last week and, with the help of a ragtag, ad hoc army of posters on Twitter (myself among them), gained huge momentum over the weekend.

(Follow me on Twitter at @Brien_Lundin to join the fun.)

So there was great anticipation yesterday evening as the overseas markets began to open…and silver did not disappoint, immediately leaping $2.00 on a spot basis to $29.00, then moving up to $29.50 over the next few hours.

It’s been back and forth since the New York opening, but as I write silver is maintaining $28.00 on a spot basis. It’s been up around 10% or more over Friday’s close — a rare and absolutely amazing move.

Silver is actually pulling gold along for the ride, with the yellow metal up as much as $25 at one point, and up about $13 at last check. We’ll see if both metals can rebuff a bear counter-attack currently in progress.

It’s exhilarating…but we have to control our emotions if we’re going to make money from this and subsequent moves.

A Difference In Scale And Kind

As I noted last week, while there are many potential similarities between the GameStop short squeeze and what’s happening in the metals, there are fundamental differences between the two markets that we need to keep in mind.

First, the silver market is much bigger than GameStop, likely an order of magnitude larger.

Also, it’s the hedge funds that are mostly long in silver. The commercials are the bad guys here.

And unlike GameStop or other heavily-shorted equities, the potential supply of silver on the Comex that can be brought in to squelch a short squeeze is functionally unlimited. Given the CFTC’s blind eye toward position limits, new “silver” can be created in practically infinite quantities by mere keystrokes.

The rubber meets the road, however, if/when enough investors on Comex stand for delivery. There’s not nearly enough silver (or gold) in the Comex warehouses to meet the demand if this happens, and the whole farce could come crashing down in that event.

Yes, they can simply move the deliveries to their London-delivery shell game called “exchange for physical” or simply move to settle deliveries in cash. And before that, they’ll raise margin requirements to dampen speculation.

But my view has been that by simply forcing the exchange to take these emergency measures, the entire farce of the paper silver and gold markets — which are merely a speculator’s sandbox and do not reflect the actual supply/demand factors for the metals — would be exposed.

And the prices of gold and silver would soar to levels more closely reflecting their values.

Still, the shenanigans that can be played on Comex and the possibility of similar games in unallocated physical metals repositories means that investors should not focus their attentions on SLV or similar ETFs. Instead, I recommend the Sprott Physical Bullion Trusts or other allocated metals accounts.

These vehicles will impact the physical markets…and in the end the pressures there will finally force the futures markets to follow the physical markets.

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Be Careful What You Ask For

If this scenario happens, it will all end well for gold and silver bugs.

But if the buying we’re seeing right now is largely a futures-based speculation, in which the hedgies are actually investing alongside the Reddit mob, then we’ll get a sharp retreat from the fever-induced spike.

So let’s hope the #SilverSqueeze crowd is buying the physical metals, as the wise experts have been counseling.

The ride has begun, and it’s going to be interesting to say the least.

All the best,

Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference