Let’s discuss why the silver squeeze failed to launch silver prices higher last month, as was the online consensus in the silver community. With all the excitement in early February when silver was trading solidly above $28 an ounce and gold was trading at about $1,860 an ounce and that a coming silver shot to the moon caused by a developing silver short squeeze that could send silver skyrocketing to $1,000 after the COMEX defaulted on silver futures contracts that stood for delivery, what the heck happened? The easiest answer is just four words: “don’t believe the hype”.
In fact I even released a short message that warned against believing the strong silver hype last month here and followed up that warning by releasing a podcast of exactly what I was telling my skwealthacademy patrons would happen in February, which was that silver futures prices were going to fall from above $28 an ounce to $25 an ounce and that gold was going to fall by more than $160 an ounce from $1,860 to $1,700 an ounce, which was exactly what happened in February into this first week of March (Just click here to see parts of three actual warnings I sent to skwealthacademy patrons on the 10th, 15th and 26th of February (click here to view and you can skip to the 5:40 mark if you want to get right to the start of my predictions).
So, why was all the online buzz about silver in February so wrong and what were the reasons why the silver squeeze failed to launch silver prices higher. Quite simply, most of the analysis about the silver squeeze that spread like wildfire last month was spectacularly wrong because most analysts have zero understanding of how the silver and gold price manipulation game really works. Though they may be aware of the arrests of Barclays banker Daniel James Plunkett and JP Morgan bankers John Edmonds, Christian Trunz, Michael Nowak, Gregg Smith and Christopher Jordan, some under racketeering charges for criminal gold and silver price manipulation, most still don’t understand the physical delivery process that surrounds the most heavily traded futures contracts in New York, the 100-oz gold futures and 5,000-oz silver futures contracts, the almost non-existent percentage of futures contracts that stand for delivery compared to overall trading volume, the obscure allowances for EFP (Exchange For Physical) transactions that allow paper derivative products to “count” towards physical delivery in precious metal futures transactions, or even how to properly read and interpret COMEX warehouse data and reports.
Consequently, dozens of analysts published articles that were peppered with either inaccuracies, falsehoods, or both. The reason why the silver squeeze failed to launch silver prices last month into this month was simply because expectations of how market pricing mechanisms work in the silver market failed to align with reality. In fact, if you visit my patreon page here, you will see an entry titled, “Everything Wrong with the (Online) Silver Narrative”, a 40-minute podcast I released to patrons this week that I felt was necessary to counter and clarify the mountains of poor and wrong information about silver that is constantly traded online.
In any event, if we just reference my last article about the CME Stops and Issues report I published in August 2020 (the first one on this topic which was published right here on ZeroHedge last year and received more than 330,000 individual reads), you can see, in that article, that the CME data revealed that by August 2020, the amount of registered gold and silver in COMEX warehouses was exploding. From my article, I stated that “the explosion of registered gold from 6.423M AuOzs to 15.270M, a 2.4X increase in just three months is significant, because this represents the physical gold in COMEX warehouses with attached warrants specifically tied to gold futures trading in New York.” Likewise, with silver, in their house accounts, bullion banks that stored silver in COMEX warehouses had suffered net losses of 17,215,000 troy ounces of silver or 535.4 metric tonnes of silver from December 2019 to 4 August 2020.
I’ve compiled the same data for the period of December 2020 to 28 February 2021. As you can see, the bullion banks continue to hemorrhage physical silver as they suffered further net losses of physical silver during this period in their house accounts of 26,765,000 troy ounces of silver, or 832.5 metric tonnes. For those of you that may not understand what the below data means, in the house accounts, “stopped” contracts represent the number of contracts for which the bullion banks stood for physical delivery, so the number merely has to be multiplied by 5,000 ounces per contract to determine the amount of silver ounces received, whereas “issued” represents the silver lost in the house account. Thus, bullion banks, in order for their silver inventories not to decrease, want to stop more contracts than they issue on a net basis.
So, with all this physical silver being lost from bullion bank warehouses, why did silver prices not soar, along with gold prices, this past February into this month, as was expected by large parts of the online silver community? In fact, the data almost supports this conclusion that was spreading like wildfire through the silver community in February. And why did I tell my patrons that I expected gold and silver prices to plunge for all of February, as can be viewed in the above link to the videos my patrons received last month?
The answer is because there was a widespread misconception that a short squeeze of silver was going to be as easy to execute as the short squeeze in Gamestop and AMC stocks, and that losses of physical silver and gold from house accounts and gains in client accounts would translate into shortages of gold and silver backing futures trading in New York. Neither of these are true, including beliefs that the above data conditions will provide severe system stresses. As I explained above, other options in which paper derivative PM products can be delivered in lieu of real physical silver and gold to satisfy “delivery” requirements significantly dampen any real physical gold and silver shortage problems that may occasionally arise in futures markets.
Furthermore, because double counting of gold and silver warehouse stocks across various reports documenting these inventories occurs at times and there is a complete lack of transparency of how all the warehouse stocks across various reports are connected, it is truly difficult, if not impossible, to determine how losses from house accounts and gains in client accounts of physical gold and silver bars will impact physical delivery for owners of futures accounts that stand for delivery. Furthermore, standing for delivery does not necessarily mean that gold and silver bars will leave COMEX warehouses as one has to choose the “loud out” option to accomplish this. Standing for delivery on gold and silver futures contracts initially only bestows the person or institution standing for delivery with a warrant or paper receipt that proves ownership of bars stored in the “registered” inventory.
And if push came to shove, and there truly was not enough inventory to “deliver” gold and silver bars to those that stood for delivery under the “load out” option, do you really believe that the bullion banks would not confiscate “registered “ inventory to accomplish this rather than default? Thus, it should be clear that all the talk about “forcing” COMEX to default on silver was much more based in fantasy than reality. Furthermore, one can merely check the CME metal depository reports, which for 2 March, despite JP Morgan hemorrhaging more than 13.355M AgOzs in their client accounts in the above reports, had accumulated so much physical silver for the entirety of last year that the CME metal depository reports still show that JP Morgan still has 162.6MOzs of vaulted (eligible) silver and more than 195.2Mozs of total silver (registered and eligible), while there is a total of 398.8MOzs of eligible and registered silver as of 2 March 2021.
Thus, all the talk about a forced COMEX default of silver delivery squeezing silver prices to the stratosphere in February, was based upon, in my opinion, a lack of understanding about the process and a lack of attention to detail of what was happening in the silver futures markets in London and New York, in which clear signs, starting at the end of January, manifested that predicted silver (and gold) prices would be slammed lower for the entire duration of February.
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