November 6, 2023 | Tightening Further

Last week’s new short position report indicated a moderate increase in the short position on SLV, the big silver ETF, of 2.4 million shares to just under 19.8 million shares (18 million ounces). This increase came at a time of rising prices (as did a similar rise in the shorted shares in GLD, the big gold ETF) and seems to indicate further evidence of a deepening physical silver shortage. The most plausible explanation for shorting shares of SLV is to evade the requirement to deposit metal as new shares are created. The effective short position in SLV is also about 10 million shares less than posted due to the mechanism of “shorting against the box.” New shorting due to the lack of available metal and the real short position being camouflaged due to shorting against the box is extremely bullish.

New signs of physical tightness include the Sprott silver ETF (PSLV), where there was a net inflow of $15 million. This normally translates into the immediate purchase of physical silver, in this case upwards of 600,000 ounces. Time will tell, but a plausible explanation for why no physical silver has been bought and deposited into the trust is the metal not being available for purchase (or actual delivery).

Another sign of physical tightness is the surge in the production and sale of Silver Eagles from the U.S. Mint. So far this month, the Mint has sold over 3.3 million ounces. It’s not so much how many coins the Mint is producing, but who are the buyers. Retail sales have definitely been on the ebb – leaving a stealth big buyer as a likely candidate. This would be a great means of acquiring physical silver in tight times. I’m sensitive to this because I watched JPMorgan gobble up 100 million ounces of Silver Eagles and Canadian Maple Leafs from 2012 to 2016.

Against this backdrop, the price of gold has hit new highs on several occasions over the past few months. The shocking thing is that silver is still down by more than half from its all-time price highs. Most shocking of all is the undeniable evidence of a deepening physical shortage in silver for the first time in history and that despite the shortage, the price of silver has not risen to reflect the shortage. Such unusual circumstances in a world commodity, in a state of pronounced physical shortage, whose price suggests surplus and not shortage, would seem to demand an explanation. Likewise, silver is the only world commodity that has a dual demand profile, both as an industrial commodity and as a primary investment asset. That industrial consumption has grown, and investors show no signs of net liquidation, also demands a reasonable explanation for why prices don’t reflect this.

I know it gets old, but there is an over-powering explanation for why the price of silver doesn’t reflect its supply/demand fundamentals and that explanation is the forty years of price suppression/manipulation on the COMEX. Just because it gets old and glaringly obvious that this is the sole cause of silver’s artificially depressed price doesn’t make it any less valid.  It’s hard to conceive of all the important developments that have occurred in silver. Some, but not all that come to mind include JPMorgan putting the finishing touches on its epic physical accumulation of a billion ounces of silver and 30 million ounces of gold, JPM’s $920 million settlement and deferred criminal agreement with the Justice Department in 2020 for precious metals price manipulation (now recently expired) and JPMorgan’s escape from being the dominant COMEX silver and gold short seller, also in 2020. That JPMorgan then went on to snooker and hoodwink Bank of America into leasing and short selling a billion ounces of silver and 30 million ounces of gold starting in 2020 also ranks as one of the most significant developments.

Both gold and silver are experiencing sharp declines in physical holdings in the COMEX warehouses and in the leading ETFs, such as GLD in gold and SLV in silver. Both metals continue to experience strong outflows in recent days. I accept that gold is moving from the West to the East, while silver is simply in a deepening physical silver shortage, but regardless, the shrinkage in COMEX warehouse and ETF holdings in both metals is bullish beyond dispute. Considering the overall state of the world, in everything ranging from war or peace, political divisiveness, economic and financial strains due to apparent out-of-control levels of debt, this would appear to be a time that would favor growing interest in gold and silver. Because things have gone so far and have lasted for so long in silver, I’m more convinced than ever that when silver does “go,” it goes suddenly and sharply – no two steps up and one step back. Those not on board will have trouble getting aboard a train that will blast out of the station and, by price action, seek to prevent those arriving late from getting on board.

Ted Butler November 6th, 2023

Posted In: Butler Research

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