The “#SilverSqueeze” fizzles — at least for now — as the Comex circles the wagons.

February 3, 2021

Dear Fellow Investor,

It would be funny if it weren’t so tragic.

The “silver squeeze” that sent the price of the metal soaring on Monday was completely reversed, and then some, yesterday as the pros moved in to unceremoniously hand the bag over to the little-guy investors.

It was inevitable, of course, as the short squeeze was aimed at the wrong target all along, and the forces-that-be held all the cards — in the form of unlimited virtual supplies of metals conjured up by keystrokes — to turn back the buying attack.

If you read my Golden Opportunities commentary on Monday, you know all about how the Reddit community, or some subset of them, were joined by silver and gold bugs in a loosely-organized buying spree in silver. That effort sent silver up about $1.50 to over $29 and gold up about $14 to over $1,860.

It was an exhilarating, heady time, with silver making headlines in not only the financial media but also the mainstream media as the theme of GameStop gamers turning their attack toward silver was irresistible.

As I’ve noted, while I applaud the motives of the Reddit crowd in wanting to stick it to the “man,” their efforts were misplaced to a great extent. The hedge funds were actually long in silver, and the bad guys were the commercials.

Moreover, the commercials could conjure up practically unlimited amounts of silver on Comex to overwhelm any buying.

And so it occurred. First, the CME raised margins on silver trading and the Commodity Futures Trading Commission (the “regulator” of the futures markets) said it “is communicating with fellow regulators, the exchanges, and stakeholders to address any potential threats to the integrity of the derivatives markets for silver….”

Note that their concern was with their milk cow — the derivatives traders — and not with the integrity of the silver market itself and the investors in that market.

As I tweeted following the release of this statement:

"That's a nice stack you got there. I'd hate to see something should happen to it."

— C.F.T. Corleone

In short, the big boys were going to put it to the little guys again.

And so they did yesterday, with gold and silver giving back all of Monday’s gains, and more.

Spot gold closed yesterday down $24.00 (1.29%) to $1,837.20 bid, while silver lost $2.07 (7.25%) to $26.48. Platinum fell $33.00 (2.94%) to $1,090, while palladium shed $8.00 (0.37%) to $2,166.

The gold stocks, which enjoyed stellar gains yesterday, also gave back all of them and more, despite a banner day in the broader equity markets. The GDX fell 2.97%, the GDXJ dropped 5.21%, the XAU lost 4.96% and the Gold Bugs Index (HUI) fell 3.07%.

Today the metals are recovering somewhat, with gold fluctuating around unchanged and silver up about 1.00%.

So is the #SilverSqueeze finished for good?

I don’t think so. All along, I expressed worries that an exogenous buying event that caused a spike in gold and silver, followed by the inevitable correction, could derail the longer-term bull run that I’m expecting.

As it turned out, the event lasted only two trading sessions (so far), and seems to have done little damage to the long-term prospects for the metals. If anything, it’s been a net positive as it has exposed untold new investors to the powerfully bullish story for gold and silver.

And the effort could regroup. In fact, if it is directed toward allocated metals funds (like the Sprott Physical Bullion Trusts) instead of the unallocated ETFs like SLV, then the buying can have a real effect on physical silver supplies and pricing.

If the current $3-$5 premium on physical silver over the paper-silver spot price can persist, then the arbitrage opportunity will, in my mind, become irresistible. Big players taking advantage of that arbitrage will have the ability to force the Comex to actually deliver metal at the artificially suppressed prices, and potentially expose and explode that scheme.

More likely, the potential for that to happen will cause the paper metals prices to draw nearer to the real-world pricing of physical metals.

The end effect would be much higher prices as growing demand (due to the extreme, bullish fundamentals in place) runs up against restrained supplies.

So the silver squeeze is, at the moment, in a time-out. It could return over the next few days, but our focus should remain on the exceptional long-term fundamentals still in place.

All the best,

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