$1,000 Silver!

Daily ReckoningDaily ReckoningFebruary 5, 2021

This post $1,000 Silver! appeared first on Daily Reckoning.

First the hedge funds. Now the major banks — perhaps the Federal Reserve itself?

Like a cocksure prizefighter who has flattened his initial opponent, Reddit members are hot for higher glories…

‘Look what we did to Citadel. But that is merely the start. Our strength is our numbers.

We are not driven by greed alone. We are driven equally by hatred — perhaps even more so by hatred.

That is, we are driven by hatred for Wall Street and its rigged contests.

Wall Street has the referee and the judges in its pay. It even has the commissioner. It has sugared them all with monetary inducements.

Thus the combat is not one against one… but one against many. The little guy stands the snowball’s chance.

We are out for them all — boxer, referee, judges, commissioner.

Wall Street nearly bankrupted my family in 2008. It gambled with our money — our money — and rolled snake eyes.

We almost lost our house.

But did Wall Street take the consequences? Did it suffer its own losses?

No. We taxpayers made its losses good — and then plenty more. No one ever asked us. They plodded ahead regardless.

Meantime, the stock market runs at record heights these days. But I am jobless. So are many of my comrades.

Well, I decided I’d put that stimulus check to the best possible use — giving Wall Street a dose of its own bitter medicine — and enriching myself in the process.

I put money into GameStop. I made a lot of money, and the hedge funds lost billions. It was pure velvet

I would have made even more if Robinhood hadn’t halted sales under orders from Wall Street. That let the hedge funds avoid even greater losses, the bastards. You see, the contest is rigged, I tell you.

But I am out for blood. I am not alone. There are six million of us. And our ranks are growing. We will swamp them.

Now we are taking on the heavyweight division, the major banks…

The Paper Market Makes the Rules

The champion is a paper champion, says the Reddit crowd. This paper is his very weakness…

As the paper gold market heavily influences the physical gold price, so the paper silver market heavily influences the physical silver price.

Our agents inform us silver is — in fact — among the most manipulated assets on Earth. And BullionStar claims paper silver supply exceeds physical silver by at least 100 to 1.

That is, 100 separate parties lay claim to the same silver ounce.

As with gold, almost all silver contracts are settled monetarily. Very few demand settlement in physical silver.

What would transpire if all paper silver holders suddenly demanded physical silver when their contracts expired?

A lovely game of musical chairs…

Only one of 100 could claim the physical ounce. The remaining 99 must go scratching.

The paper market would go to pieces… and the pandemonium would likely send silver prices to heights truly staggering. By some estimates, even obscene.

The Strategy

From the WallStreetBets forum:

[The] Silver Bullion Market is one of the most manipulated on earth. Any short squeeze in silver paper shorts would be EPIC. We know bullion banks are manipulating gold and silver to cover real inflation.

Recall, their strength is their numbers. WallStreetBets boasts some six million members.

By storming into silver, these underhounds would force the overhound banks to pull down their silver shorts… thus exposing them to crippling losses… as they exposed hedge funds to crippling losses on GameStop shorts.

There is the Reddit strategy — to wallop the paper champion with silver-loaded gloves. To send silver prices streaking… and the big banks to the mat.

Silver bullion is already vanishing from the shelves. And premiums are increasing. A 1-ounce American Silver Eagle commands nearly $40 today — a substantial markup.

Silver is listed at $27 the ounce.

At what price might the Reddit challengers declare a win… and claim the title?

Reddit member RocketBoomGo:

Inflation adjusted Silver should be at $1000 instead of $25. Why not squeeze $SLV [silver ETF] to real physical price… Think about the Gainz. If you don’t care about the gains, think about the banks like JP MORGAN you’d be destroying along the way.

Again, they are not motivated by greed alone. They have revenge in mind. And vengeance is formidable motivation.

Strength to their arms!, we say.

$1,000 Silver Is Impossible!

But $1,000 silver is lunatic, you shriek. It presently fetches $27.

Just so. Yet we remind you: GameStop went at $17 on January 4. The ensuing delirium chased it towards $500 by the end of the month.

Why not $1,000 silver? We have seen Donald Trump become president of the United States. We have even seen Joe Biden become president of the United States.

Besides… their $1,000 target does not come issuing from an empty hat. It is not a mere rainbow to chase.

If you take the ShadowStats Alternate Consumer Price Index as your guide…  silver’s real inflation-adjusted all-time-high is $966.77 (established in January 1980).

Thus silver’s real inflation-adjusted record high soars 3,800% above the current silver price — if you can believe it.

Silver is vastly undervalued as history runs.

The silver-gold ratio counts the number of silver ounces required to fetch one gold ounce.

In modern times, the average ratio ranges between 40:1 and 50:1. Today the ratio exceeds 60:1.

All the while, silver production is lean. Last year mining output may have fallen over 6%. Production likewise slackened in 2019.

This, at a time when industrial demand for silver is on the jump. Silver goes into solar panel production, for example, and electric automobiles.

Seen through these prisms… $1,000 silver is conceivable… in theory.

The Reality

But is $1,000 silver likely? It is not.

The Reddit crowd may tilt at its windmills. It might even have justice with it. Yet it is unequal to the mischief it seeks. It cannot — in every likelihood — pull off the caper.

The global silver market is a liquid giant next to a fairly thinly traded stock as GameStop. It will not be shoved around so easily.

Jim Baird, CIO of Plante Moran Financial Advisors:

It’s very different from a small-cap stock. [Retail investors’] ability to really impact market pricing will be much more limited than it was with GameStop.

What amount of physical silver purchasing — and call option purchasing — could push silver to $1,000?

We do not know precisely. Yet the answer would surely stagger.

But assume these nuisances did somehow send silver rocketing. The authorities would soon rechain it to Earth…

During the inflationary 1970s, the billionaire Hunt brothers — Herbert and Nelson — nearly ran a corner on the silver market.

They hoarded physical silver as squirrels hoard acorns. They purchased call options. These vastly outmuscled the shorts.

Silver rose and rose… and rose some more.

By 1979 they commanded ⅔ of the silver market through futures trading. Their position peaked at some $4.5 billion.

But like Icarus of Greek mythology… the Hunt brothers flew too close to the sun…

The Government Shows Who’s Boss

In January 1980 the federal government melted these fellows’ wings. How? By altering the rules of the game. Investopedia:

The U.S. government became concerned over what it saw as a clear attempt at manipulating the nation’s silver reserves… Federal commodities regulators introduced special rules to prevent any more long position contracts from being written or sold for silver futures. This stopped the Hunts from increasing their positions by temporarily suspending the fundamental rules of the commodities market. With longs frozen and shorts free to pile in, the price of silver began to slide. Margin calls on the loans began to take a toll on the Hunts’ reserves to the point where they were paying millions a day in calls, storage fees and interest.

More:

The Federal Reserve then took an unusual step: it strongly encouraged banks to stop making loans for speculative activity. When it became clear that the government was after the Hunts’ scalps, their credit dried up. Concerns that the Hunts might not be able to meet margins with new loans and would go under (pulling several brokerages and banks with them), put further downward pressure on the price of silver. On March 27, 1980, the Hunt brothers finally missed a margin call and the market plunged; silver led the way, dropping to under $11 from its high of $48.70.

Thus the federal regulators and the central bank cleaned these fellows out.

What are the odds that the same federal regulators… and the same central bank… would allow some motley band of novice traders to succeed today… where the Hunt brothers failed yesterday?

The same odds — roughly — that a fool and his money will remain united…

Regards,

Brian Maher

Brian Maher
Managing Editor, The Daily Reckoning

The post $1,000 Silver! appeared first on Daily Reckoning.

Source: Daily Reckoning

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