Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan
Gold Price Back Below $1,800! - 10th Sep 21
The Inflation/Deflation debate wears on… - 10th Sep 21
Silver Price seen tracking Copper prices higher - 10th Sep 21
The Pitfalls of Not Using a Solicitor for Your Divorce - 10th Sep 21
Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
This Boom-Bust Cycle in US Home Ownership Should Give Home Shoppers Pause - 9th Sep 21
Stock Market September Smackdown Coming Next? - 9th Sep 21 - Monica_Kingsley
Crazy Crypto Markets How to Buy Bitcoin, Litecoin for Half Market Price and Sell for TRIPLE! - 8th Sep 21
Sun Sea and Sand UK Holidays 2021, Scarborough in VR 180 3D! - 8th Sep 21
Bitcoin BTC Price Detailed Trend Forecast Into End 2021 - 8th Sep 21
Hyper Growth Stocks - This billionaire is now using one of our top strategies - 8th Sep 21
6 common trading mistakes to avoid at all costs - 8th Sep 21
US Dollar Upswing, S&P 500 and Nasdaq Outlook - 7th Sep 21
Dovish Assassins of the USD Index - 7th Sep 21
Weak August Payrolls: Why We Should Care - 7th Sep 21
A Mixed Stock Market - Still - 6th Sep 21
Energy Metals Build Momentum; Silver & Platinum May Follow - 6th Sep 21
What‘s Not to Love About Crypto Market Fireworks - 6th Sep 21
Surging US Home Prices and Gold – What’s the Link? - 6th Sep 21
S&P 500 Rallies To New All-Time Highs – Are The Markets About To Break Higher? - 5th Sep 21
Bond Conundrum - Boom or Bust for Gold? - 5th Sep 21
How the sale of a Sting CD sparked an Entire Online Industry - 5th Sep 21
Three Years of Fresh Thinking With Scott Dylan and Dave Antrobus - 5th Sep 21
Bitcoin Bear Market Trend Forecast 2021 and Model Crypto Portfolio Buying Levels - 4th Sep 21
The Most Actively Traded Companies on the Toronto Stock Exchange - 4th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Silver Backwardation and Other Evidence of a Silver Supply Squeeze

Commodities / Gold and Silver 2021 Feb 18, 2021 - 12:00 PM GMT

By: MoneyMetals

Commodities

The effort to squeeze silver shorts may appear to have fizzled, but naked short sellers are as vulnerable as ever.

Silver futures prices are entering backwardation. That is a bad omen for anyone betting on lower silver prices.

Backwardation happens very rarely, but this condition has been a reliable indicator that higher prices are on the way each time it has occurred over the past decade.

In the futures market, silver prices generally go up based on how far away the delivery month is. Most of the time, prices for future delivery are higher than today’s spot price, i.e., the price for delivery now. There is a cost of carry – primarily driven by storage fees and opportunity cost of funds – when it comes to holding physical silver bars.


One way to think of it is that sellers build in the cost of storage to the price – and buyers of futures contracts must agree to pay increasingly higher prices the further in the future they wish to take delivery.

However, with all that said, the silver market isn’t functioning normally at the moment. The higher prices being paid for delivery of bars today is an indication of short supply.

It also may imply that investors don’t have as much confidence they will be able to get delivery later.

If investors felt sure the bars would be there, they could simply buy a futures contract for the lower price and stand for delivery.

But market participants are weighing the risk of delivery defaults, or cash settlements, more heavily. Many are paying up to get bars now for a variety of reasons.

Periods of backwardation in precious metals are relatively rare. The chart below shows just three periods of a silver backwardation in the past decade as well as the one happening now. In each case, sharply higher prices were needed to resolve the shortage.

Price backwardation is not the only evidence of tightness in physical silver supply. There is more unusual activity involving the iShares Silver Trust (SLV). The exchange traded fund reported more than 3,000 tons of bars were added early in the month.

Skeptics find it hard to believe the SLV ETF was actually able to find that much metal available for delivery so quickly.

Now even those who trust the ETF’s reporting should think twice. SLV altered its prospectus on February 3rd, ratcheting up concerns about whether the trust actually has the silver it claims.

One Redditor explains the changes:

On 3rd February, the day after the huge three-day inflows into SLV and the addition of 3,000 tonnes +, the iShares Silver Trust changed its Prospectus adding in three paragraphs as follows, including:

"The demand for silver may temporarily exceed available supply that is acceptable for delivery to the Trust, which may adversely affect an investment in the Shares."'

"It is possible that Authorized Participants may be unable to acquire sufficient silver that is acceptable for delivery to the Trust for the issuance of new Baskets due to a limited then-available supply"

Meanwhile, BullionVault reports COMEX silver stockpiles are at a four-year low. They are down 30% from the high of 141 million troy ounces in 2007.

This creates new risks for the bullion banks and others who have been feverishly selling silver futures over the past two weeks. In recent months, the numbers of people standing for delivery of the metal on their futures contracts has spiked.

If that trend continues in March, which is the next delivery month, it may be a bigger “Come to Jesus” moment than the shorts had in March of 2020.

Silver prices have been resilient in the face of extreme selling, unlike a year ago. And this time there will be even less silver available for shorts to round up and deliver.

By Clint Siegner

MoneyMetals.com

Clint Siegner is a Director at Money Metals Exchange, perhaps the nation's fastest-growing dealer of low-premium precious metals coins, rounds, and bars. Siegner, a graduate of Linfield College in Oregon, puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

© 2021 Clint Siegner - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in