Guest Post: Short Squeeze! Here Comes 50-dollar Silver

Tyler Durden's picture

Smart Money Europe –

Short squeeze! Here comes 50-dollar-Silver

Silver is blasting through all barriers, topping $36.5 this morning! The white bullion market is tight, and the short squeeze in the futures market is exerting a constant upward pressure on the price. If current trends persist, the all-time high of $49.45/ounce will be reached in the near future.

Silver is performing exceptionally, outstripping a vast array of commodities and stocks. Even unrest in the Middle East has not stopped the price increasing, whereas during similar circumstances in the past, silver would have taken some serious blows.

As far as silver is concerned, we are living in exceptional times. Supply shortages have existed since the Fifties, but this deficit was traditionally eliminated with the (once strategic) reserves of central banks and other financial institutions, who wanted to get rid of their silver due to its lack of monetary use. Consequently, bank supplies have fallen rapidly. Today, the shortage on the silver market is mainly supplemented by recycling used silver, aka ‘scrap’.

Nick Laird of ShareLynx, who supplied the chart below, gave the following explanation in a recent MoneyWeek interview: “Since 1950, the demand for silver increased up to 925,000 tonnes, while the production only amounted to 570,000 tonnes. This equals a silver production deficit of 16 years!”

Continuous increases in demand for silver means producers can barely keep track with demand, particularly now from the investment community. Recently, Eric Sprott of Sprott Asset Management reported exceptional delays on deliveries of physical ingots, and national mints are pointing at shortages, in part owing to the gigantic increase in demand for coins. The US Mint recorded selling 4.6 million Silver Eagles in January 2011 – a one-month record – while the website King World News recently reported shortages at the Royal Canadian Mint, producers of the popular Maple Leaf.

Futures markets are becoming increasingly important in the commodity pricing and silver is no exception; indeed, trends in silver futures are largely responsible for the price rise over the past few months. This is due to the gigantic short positions retained by some major (American) banks. The four largest traders are short an impressive 104 days of global silver production on the COMEX. The eight largest traders are short for almost 140 days of silver production. Herewith, silver is the highest in advance sold metal within the entire commodities complex.

The largest short position is held by JP Morgan. JPM’s short position was vastly increased by its acquisition of the bankrupt Bear Stearns in 2008, which prior to bankruptcy held an impressive commodity-trading desk.

Because of the negative press surrounding several banks trading on their own accounts, JP Morgan decided to shut down its proprietary trading department at the end of August 2010. JPM’s “prop desk” was one of the largest active short players on the silver futures market. It is no accident that the price has risen dramatically since then.

In technical terms this is called a short squeeze, whereby the upward price spiral – caused by the settlement (or resale) of short contracts – ensures that more and more shorts have to cover: the snowball effect. Nobody can tell when a short squeeze will end. It is a phenomenon that usually originates from a small inducement and could end as suddenly as it began. They can last just a couple of days, or a couple of months or even years!

Given the still gigantic short positions on the silver futures market, this short squeeze could persist for some time. Increasing price volatility as the squeeze continues is likely. But the all-time high of just under $50 per ounce could, if the current pace of appreciation persists, be broken this year. Astute investors  make sure they get some of this action!

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nope-1004's picture

$50..... That's all?

Once the SLV is exposed as the Fed and Treasury fiat mechanism it is, then all bets are off how high this pig will fly.

SilverRhino's picture

When silver trades near parity for gold?   That's the top. Till then I'm holding, gifting some (excellent teaching aid for your children, nieces and nephews) and collecting :-)

Relatives start getting it (PM's) when you tell them that your niece's birthday gift from last year is worth double what it was when you gave it to her.    Then to rub salt in the wound you ask them about value retention of her chinese plastic crap toys from last year. 

Backspin's picture

Excellent comment, and I hear you.  I've had the hardest time trying to get family members to understand.  They think I'm crazy.  I, on the other hand, well, I think they're crazy for not buying any.  I'm the oddball, though.

And these days, I'm okay with that.

Quixotic_Not's picture

My family used to think I was a bit crazy too...

Back in 1999 when I told them the bubble would blow...

Back in 2003 when I told them that the Housing Bubble would be the biggest bubble in the history of mankind, and I took all my liquid assets and bought Ag...

Back in Aug. 2005 when I told them to sell their houses and buy PMs with the profits...

Back in Aug. 2007 when I told them that the ENTIRE U$ banking system was insolvent and that we would have SEVERE disruptions...

Now they're afraid to talk to me.

Except the formerly progressive hopium kid that just graduated from UCLA with a degree in Economics/Mathematics - He's finally sobered up and asking me what I think will happen next, but with ALL the normal rules of business suspended, I can't make any definitive calls that don't involve Hyper-inflationary Depression and World War.

People should have listened to us...

duo's picture

I told my accountant in the fall of 2006 that:

GM was going to go bankrupt.

Housing prices would drop in half and take the banking system down with it.

Gold would double (it was $600 then)

My accountant looked at the phone, ready to have me comitted.  3 years later we talked and he remembered the conversation.  What I didn't forsee was GM being propped up, or TARP/QEx.

Quixotic_Not's picture

Yeah, lots of sheepsters missed the Ag boat for sure...

Look at the poor ticker forum morons that followed Karl "I'm a lefty" Dickinger and his "Short the market, PMs are for dummies" mantra -- They not only got bent over by the Banksters + .GOV, they got bent over by a narcissistic jerk too!


Broken_Trades's picture

Funny how you predicted every single major financial mess for the last 10 years.  I really wish you would have told someone.

But youre 100% so you can tell us whats going to happen next right?

Oh wait, the rules have changed now... Darnit.

Quixotic_Not's picture

If I was insecure, I could go back to some websites I frequented back into the 90s, search my posts, and provide dated evidence to prove my claims...

But I am VERY secure in my person, finances and effects and don't give a crap what some anon on the interwebs might think.

Wanna see evidence that some of "US" saw this shit coming WAY back in 1992? (Yes, I was active in Perot's 92' campaign)

P.S.  It might be worth noting that I've had a front row seat to the multi-generational bankster looting that started in full effect in the mid 90s - Didn't take a genious to figure out this stuff anyways, just someone that wasn't stuck in the herd...

FEDbuster's picture

WW3 is a valid prediction.  In some ways, it may be the only option for the West (got to keep the "juice" flowing from the Mideast).  The FED's pumping and enabling can only last so long before the rest of the world gets tired of the Bernak's counterfeiting.

Broken_Trades's picture

@ Quix

If I was insecure, I could go back to some websites I frequented back into the 90s, search my posts, and provide dated evidence to prove my claims...

But I am VERY secure in my person, finances and effects and don't give a crap what some anon on the interwebs might think.

If you were so secure you wouldn't need to give us a chronology of all your prescient stock market calls in the last decade to a bunch of anons on the interwebs now would you?

No one doubts your smarty-pantness, or that you invested 6 figures into silver.  It's just hard for some of us to sift through the crap on here without reading massive paragraphs about how awesome you think you are.

Let us know when things get back to normal, we still want to know whats going to happen.



Michael's picture

Ron Paul's predictions have been 100% accurate as well and I voted for Ross Perot too.

Clinton signed NAFTA, repealed Glass-Steagall, and changed the formula for calculating unemployment skewing the percentage down to cover up what he did, and they love him for it. I don't get it.

Temporalist's picture

Perot, Nader, Paul any of them would have been better than what's been "elected" (I say provided).  For each one of those candidates people said "don't waste your vote" I replied "I'm not, you are."

Michael's picture

I wrote Ron Paul in last time and I will write Ron in again if I don't get a liberty candidate to vote for like Ron or Rand. I don't throw my vote away. If all else fails I vote against the incumbent establishment candidate all the time. It's best to take out the establishment candidates in the primary where your vote is worth ten times what it is in the general election.

AssFire's picture

I too supported Paul and send funds to him. I will always hate Sean Hannity for his treatment of Paul.

Dr. Paul delivered children free of charge to many locals I have come to know at my beach house in his district. Ron refused government funds and delivered his services free of charge.

He is a man of principle.

akak's picture

Yes, the entire FOX News (sic) cabal really showed their fascist, neocon colors in their repeated and abominable attacks upon, and alternately their pointed censoring of, Ron Paul, his message, and his millions of supporters during his 2007-2008 presidential primary campaign.  Such gross and obscene political bias, frequenting crossing the line into libel and hysteria, just went to prove how scared the warmongering two-party establishment is of any meaningful challenger to the fearmongering propaganda propping up their tottering oligarchic control of the USA.

Yits and the Yimrum's picture

voting in a matrix system is like pissing in the wind; going to soil your yourself

i refuse to vote for my own slavery

Ron Paul is thrown in the mix, so the pirates can quage percentages who are about tl depart the reservation

as they well know, it is never at a level that reaches anything close to critical mass; if it did you would have martial law the next day

the Tea party is a good example of a waste of the Sheeps passions

they are going to balance the budget; remember that Pete Peterson was chairman of the group that would restore America's fiscal order.  That was like putting Madoff in charge of the Salvation Army, too funny for mere words

these cons just direct peoples correct passions for doing the right thing into dead end, statist pipe dreams

Ahmeexnal's picture

So you would vote for David Duke?

DosZap's picture

 I don't get it.

I do,"Stupid is,as Stupid does."

Ahmeexnal's picture

Toffler wrote about GM going broke in "PowerShift".

That book was published in 1990.

lincolnsteffens's picture

My son two years ago argued that gold and silver are not money. A friend of his had told him that gold and silver as money was an archaic idea that no longer had any validity.

Last year I offered to put an extra $500 worth of silver into his hands as a yearly gift instead of giving him cash. He decided to take the silver. I ordered the silver in the form of 1 oz. US mint bullion coins. By the time the coins arrived they had gone up 5%. Now as another year goes by and it is worth about 50% more he has not parted with any of it.

SilverRhino's picture

It would seem our sons have something in common.   :-)

I am doing everything I can to keep him from repeating my mistakes.

Diogenes's picture

Well what will happen next? You have my attention.

WaldenPondzi's picture

What else are 30 million debt-ridden college graduates without jobs and with a lot of time on their hands to riot going to do all day? World War indeed.

lynnybee's picture

My family, too.   My oldest daughter today just told me, " Mom, you're always wrong."    My adult son, on the other hand, put some silver in his hand & has now taken an interest.    


dark pools of soros's picture

right now I just show the change in heating oil bill vs silver..  everyone says heating oil went up but vs silver i tell them it went down for me..  i think the gears in their heads locked up thinking like that

what's in their wallet?

mark mchugh's picture

I always offer to exchange it for paper money if they'd rather have that, but so far, they've all opted to keep the shiny.  Smart kids.

When silver goes triple digit, they'll have to find someone else to cash them out.

DosZap's picture

Even children know the difference for tangible objects, and paper.

lynnybee's picture

what a great comment !   what a great uncle & gifter !

Eternal Student's picture

Agreed, but this article is like yesterday's news. Here's the most recent interesting story:

In summary, Ted Butler's analysis of the most recent Bank Participation Report shows that JPM is the only Bank left actively shorting, and that they recently increased their short contracts by 6000, after having previously reduced their net short position by 11,000 contracts in the preceding 3 months.

Now that's interesting news.

h/t to The Silver Turd.

Victorio's picture

A pathetic act of desperation...

These guys are totally fucked and this whole thing is gonna blow.

NotApplicable's picture

Sure it's gonna blow. 'These guys' though, they will walk away with fat pockets for doing the Treasury's bidding. The upcoming JPM bailout (nationalization) will make GM look like a rounding error.

Victorio's picture

You think with all the gross market manipulation they are now engaging in that a nationalization will really fly?  If that happens all bets are off. Seriously.

SRV - ES339's picture

While I have a sizable silver investment and the daily Comex games really piss me off, what really gets me going is the affect on the miners (my major investments). Today's a great example as Ag & Au were smokin' overnight, the miners shot out of the gate, but slowly sold off through the day to finish negative (even though spot was marginally higher than Fridays close), as the Comex games began.

Capital punishment (which I'm against in principle) would be too good for these clowns!

DosZap's picture

Well this is not '08, and the sheeples are a lot smarter, the strong hands, and us will not RUN to redeem.

GoinFawr's picture

I don't know about the sheeples being any 'smarter', but they are beginning to get the idea; which is definitely something.

 265 mil (or conceivably many, many more) with access to ~36 fiat bux is quite a force to be reckoned with, should they all make the same investment decision more or less simultaneously.

I mean: why keep it in a bank? Can you remember the last year a savings account's interest outpaced the cost of living (see: I didn't say 'inflation')? I'd wager that for most of us it never has.

BallsDeepGold's picture


   Pulling out all stops to lower the price. That is the last step before default. Think about it - its like running up your credit cards before declaring bankruptcy. Except when the morgue defaults its the paper longs who get bent over.


   Remember, the morgue's con has two parts. They sell the paper to depress the spot price. This allows them to build up a physical position at a below market price (making money all the way down too). Then when no more physical can found (backwardation?) - they default on delivery. This sticks the paper Longs with the tab for the physical long position the morgue accumulated while also sending the spot price skyward.

  Then, once the price for physical takes off - the morgue will sell off their physical hoard at obscene levels - making money on both sides of the trade. Genius really.




nope-1004's picture


making money on both sides of the trade. Genius really. 


Yes, white collar crime is admirable behavior and only for those much too smart to be labeled as "average" like you and I.



BigJim's picture

I'm confused. How can the same entity default on silver delivery, if they've built up a silver hoard?

BallsDeepGold's picture


  They intended to default from day one. Reason you can't see it probably because you have scruples where they have none. The entire con of selling paper silver was designed to make money as the price falls (which they did) AND to build a physical position at below market prices.


  They could deliver - if they had too. But, better for them to default on the paper. Their physical position never existed to cover their paper short. The physical position is for distribution to the masses at much higher prices AFTER they default on the paper portion of their position.


 You need to separate the "paper" position from the "physical" position. They are two completely different entities. One was created to fund the other. One makes money as price goes down, the other on the way up. This is the part of the con the Ted Butlers of the world are missing. All he sees is the paper short. The con is much deeper than just selling all the way down.  

rosiescenario's picture

"JPMorgan’s motivation for suddenly and greatly increasing its silver short position is less clear and more troubling. My own guess is that the JPMorgan silver trader thought he had no choice but to sell many more contracts short in order to control the price and protect their existing short position. That’s because there was no one else left to sell. If JPMorgan didn’t sell, no one else would have (at prevailing prices). That’s the problem and it goes to the heart of the crime. The raptors didn’t want to sell, nor did the 5 thru 8 large traders. Ditto for basically all the other silver traders. That left JPMorgan as the sole silver seller, as the COT and Bank Participation Reports clearly document. Please think about this."

...painted themselves into a corner and now trying to paint their way out....good luck.

Paul Krugman's picture

Somebody quick, stick some silver in my pooper

f16hoser's picture

Kick the tires and light the fires


Light this candle

strannick's picture

Fly little silvery pig, fly!

akak's picture

"Pig", you say, Strannick?

On the contrary, silver is a sleek, beautiful dove soaring over the dew-kissed meadow as the sunrise bathes it in its warming embrace.

Paper silver, on the other hand, is a wad of shit-smeared toilet tissue floating in a cesspool.

strannick's picture

Silver is my prized pet little piggy I let sleep in the bed so he doesnt catch a chill. Or keep tucked away deep in the woods, where only my GPS can find him.

jackpagan's picture

Long since $12.88...its just warming up. All the people I told back then and laughed at me are now asking the about the best way to invest. Looking forward to the day a cab driver tells me he's just invested in silver.

strannick's picture

Even if he does, it'll only be a 1/10th of an ounce coin

DavidPierre's picture

I'm going to play Mr. ButtInSki here and bring this to everyone's attention.


"Traditionally, gold has been a store of value when citizens do not trust their government politically or economically."

But... But... can you even TRUST Gold?

"Late last week I was dropping off some gold items to a local jeweller and one of the ladies there showed me a fax they had received from the Jeweller's Vigilance Commission.

The fax outlined a fraud that had taken place in which 95 gold bars were obtained with a bank draft which was counterfeit. This took place in Montreal on February 14. The amount of the draft was just shy of two million dollars. Many of the bars were 10oz Perth Mint Bars. The fax also included Toronto police contact information.

Incredible! A theft of almost two million dollars worth of gold and not one mention in the mainstream media or even in the gold community.

An internet search yielded some Australian news items due to the bars having been manufactured by the Perth Mint in Australia. Only in recent days have some local/mainstream media outlets released this story.

Why has this story been kept under wraps for over two weeks?

Who was the vendor and what bank did the draft originate from?

Was there a breach in protocol by the vendor in dealing with a draft of that size?

Is the vendor insured for this type of loss?

I have some thoughts on this matter and it should be a major concern to everyone in the gold community who has (or think they have) custodial gold.

There is only one vendor (whom I will not name) in Montreal that has the wherewithal to sell that volume of gold across the counter.

They also offer pool accounts as well as allocated storage and have a program affiliated with the Royal Canadian Mint.

 Could it be that releasing their name could possibly start a run on pool or allocated storage accounts in North America?

If there was a breach of protocol in dealing with a draft of that size, would that further serve to undermine confidence in such programs with other vendors?

There is one inescapable conclusion that I have arrived at because of this issue and the attendant opacity.

It is foolish to consider ANY allocated, custodial or pool account secure.

If you do not have your gold in your possession, you will one day be among many other unsecured creditors dealing in a paper or some form of legal nightmare.

If you cannot take responsibility for your own specie, your only alternative is a fund proxy such as Central Fund of Canada or Central Gold Trust. There are a few others out there but be wary of any offering settlement in specie.

Buy a proxy that is just that and nothing more.

The rubber is about to meet the road as far as deliverable specie goes.

Even well intentioned custodial vendors could face issues as the revenue they earn from storage fees is insufficient to cover their costs as investors exit with metal in hand."

I've known this bullion dealer for years and he is a straight up, no nonsence gold-bug in Alberta.