by Clint Siegner, Money Metals:
Physical silver bars continue to drain from COMEX and London warehouse stockpiles. Lower spot prices are contributing to this.
Larger investors who hold deliverable bars aren’t throwing in the towel and dumping them back into the market. Instead, they continue to stack, much like retail investors buying the smaller coins, rounds and bars.
An attempt by Reddit users to create a “silver squeeze” in early 2021 marked the beginning of the year-and-a-half long trend of steadily declining bar inventories. The grassroots movement was an attempt to break the crooked price discovery scheme in silver.
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Buyers were encouraged to purchase silver and take possession. The hope was that the tiny inventory supporting a mountain of paper derivative metal would disappear. Shorts would have to bid more and more for available bars in order to exit their positions and end the pain.
The buzz around the “silver squeeze” faded from the headlines over a year ago, but the draining of inventory continues.
As available stocks decline, the prices paid for deliverable bars in the cash market keep getting higher versus paper silver futures.
The mismatch in prices between the two markets is way outside of normal and should serve as a warning.
Buyers are paying up to get physical metal, and they are bearing the cost of storing large bars.
So far, traders on the short side don’t seem bothered by these troubling underlying fundamentals.
The past few months have been profitable for those making leveraged bets on lower prices.
What makes this setup interesting is that it is the speculators, not the commercial banks, who are heavily short. (Perhaps traders went to the Hamptons this summer and the trading algorithms they left on autopilot aren’t programmed to watch inventory levels.)
Futures market speculators are also not too quick on the uptake — generally speaking. Bullion bankers have a long history of total domination against them in futures trading.
Normally it is bankers and commercial hedgers who are short and specs who are long. The current positioning may be backward, but you can expect the winners will be the same people – those classified as the large commercial traders.
Commercial traders tend to position themselves correctly ahead of the next trend – and right now they are positioned for the silver market to turn up.