silver bars – one of the most popular denomination of silver bars purchased by our clients over the years (Figure 1). We have tracked the premiums of ex-stock 100 oz. Coupled with the need for most retail investors to take possession of their physical silver as soon as possible, the premium for physical silver in the short-term doesn’t look like it will abate. The current ready silver stock – what we term as ex-stock silver inventory – commands an even higher premium due to the influx of demand. There are still large silver bars available at many vaults around the world but they are not the preferred choice for retail investors. The sudden sharp increase in physical demand from clients globally due to the silver squeeze, coupled with the Covid-19 measures implemented in mints and refineries, have led to a short-term tightness in physical silver bars and coins. Physical silver premiums rose by at least 50% or more but it does not mean that physical silver is running out. Physical silver premiums shot up sharply, does this mean there is not enough physical silver? The bottom line is, we do not see the full picture from the reports provided from CME or COTR. This is contrary to the belief that the silver squeeze will hurt banks and funds like how the Reddit short squeeze in stocks resulted in huge losses for some hedge funds. This ride up in silver prices allows them to hedge their risk at a much higher profit and due to the larger number of buyers available, also allows them to get out of their positions even earlier and at a tidy profit. For example, a trader in a bank may have bought a large amount of silver from a fund but has yet to sell it out so as not to move the silver price too drastically. In other words, these short futures positions are being offset with physical silver held in their inventory.Īnother point to note, we do not know what is on the trading book of each bank and they might have positions not pushed out to the market yet as they have taken on a sizable position. Most of these short future positions are in fact hedging against physical silver exposure or miners securing prices in future months to deliver mined silver. For example, based on the short positions reported on 9 February for commercials, total short positions is 116,717 contracts. At a glance, using the same lenses as how the Reddit retail investors view heavily shorted stocks, silver would seem like a prime candidate for a short squeeze for both commercial and non-commercial positions. Refer to Table 1 for the COTR for silver (this data is readily available to anyone). The shorts reported by the Chicago Mercantile Exchange (CME) or Commitment of Traders Report (COTR) does not mean that all of these shorts are speculative positions or positions that traders have placed to bet that prices will go south for them to make a profit. The commodities market doesn’t work like the stock market. Why didn’t this work with the silver market?
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