Update: Silver is just getting warmed up. What's next.

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by VBL
Friday, Oct 28, 2022 - 13:13

Silver is just getting warmed up

Authored by Goldfix

Yesterday we posted a short twitter thread for Silver people who were  asking how to interpret recent events surrounding precious metals in general and Silver specifically:

Here is the totality of that thread:

Fwiw: Last phys. purchase was monster box of RCM at $4.50 premium. It’s still ITM $5 lower. that’s how it starts to self-feed. Asian demand depletes western supply. The last thing to reflect it will be exchange futures. Then it will be too late.

Just like Nat Gas in a weather squeeze. Spot does not get reflected in futures until it’s too late. Silver will be much much slower. Which means it lasts much longer. Until JPM tells comex it will default on its shorts which forces comex to disconnect phys from futures.

Continue to be patient. 99.5 % of the world has no clue what we’ve been ranting about for years. The only people they (s.b.that) get it are us and the bank traders who will be long when it rallies. Do not underestimate the ignorance of the masses. We’re still early in this.- VBL's Ghost 

ZH put out a post on this yesterday, and we cannot underestimate the weight of their drawing attention to Silver in this way. Here is an excerpt from that post with a salient quote from SD Bullion's Dr. Wall. The following is one of the most powerful comments explaining the situation that can be stated.

Dr. Wall from that Zerohedge post:

Silver stackers we talk to on a regular basis seem to be getting tired of hearing about the market tightness without any movement in the bank spot price. However, obviously that could be about to change if the COMEX and LBMA vault drain continues for much longer. One of the individuals I speak to regularly who has first hand knowledge of a COMEX depository's operation told me recently that they didn't think there's any unspoken silver left, just people haven't figured it out yet. An interesting comment, given that there is supposedly 35 million ounces of registered silver left at the COMEX.

Some silver bullion production is ordered out through March 2023 and nearly every silver round/coin is at least 4 weeks delayed from purchase, most 6-8 weeks. There already exists on the wholesale market what will be manifesting in retail trading across the space in the coming weeks: a complete uncoupling of price for live, deliverable Silver. You can already see that in the US Silver Mint Eagles where premiums are now nearly 100% of spot price. In the rare occurrence someone is quoting inventory that's actually there, on a shelf and ready to ship that day, premium becomes almost irrelevant in this market. There's virtually no price quoted that is too high with the benefit of 3 hours hindsight. You snooze, you lose. -Dr. Tyler Wall, SD Bullion, Inc.

h/t @jameshenryand

Among other things, he is talking about a long-standing structural deficit and the slowly raised awareness that the pricing economics do not make sense anymore. There is too much evidence now that paper price is disconnected from physical price. Financial markets are not reflecting structural supply deficits at all.


Structural Deficits Can’t Be Spoofed Away

This emerging industrial Silver problem is due to years of neglect in a core strategic asset.  Combine this with a financialized market structure that dissuades investment and healthy bull speculation. The result was: we got more money funneled to Wall street concoctions than should have been. This financialized market structure problem becomes a tail wagging the physical dog.

Financial market structure has demoralized metals bulls and stock bears alike for decades this way. But it is ending. Don't blame the Bullion Banks (too much) for playing the short side to make money all those years. Those same Bullion banks also recognize what we've written here and will be very long bullion (and likely short paper) when the tide turns. And the tide is turning, even if slowly.

How do we know? Because what will happen in Silver is already happening in Oil, Texas ERCOT, and Natural Gas. These are also strategic asset commodities with structural deficits in the US. They predict what will happen in Silver. In fact this is already happening in Silver, just at a much slower pace.


Silver (and Gold's) Tactical Map

It will probably start with something like a meme-stock style SLV short squeeze. Bad actors will be blamed. Then the Regs step in either directly or though proxies (margins raised, capital controls used etc) to get rampant predatory speculation under control. After this, the market returns to "normalcy" due to cooler heads taking control. But Silver is not a meme stock that its CEO can merely issue more shares of. This is a physical commodity in structural deficit. That's when the multi-year long term bull market begins. That's when the real rally starts.

When Silver rallies, and it will, those with much to lose will push back  After that first move higher weak longs  and scrap (Silver has a huge scrap overhang that will come out of the woodwork on a major price spike) will be shaken out and there will  be a counter move back down. When this happens, an extended more orderly bull market comes for years until the structural ( i.e. fundamental)  problem is solved. Silver is just getting warmed up. The parallel is 1972 in Gold, not 1982.

Right now the global bank and regulatory community has much bigger, more important fish to fry than the little old stupid silver market. Ultimately leaders do not care about price, they care about speed of rise and headline risk that conveys they are losing control of financial markets. Therefore true price will be the last thing to reflect value as it will not happen overnight, and shorts will use all their considerable power to slow it. Let them. Ultimately the smart banks will be long; just like you and the government. Structural problems can't be spoofed away.  The only thing that can stop this eventuality of repriced Silver is another great depression in our opinion.


Own it Now, Trade it Later

If this is real, and you already have silver exposure, keep calm, we may feel late in the game as people who watch this closely. But in western investment terms we are extremely early. Years early if I am right. If you believe inflation is here for years to come in some form, and you believe the repression of physical asset prices is coming to an end as a byproduct of a reset, regime change, new world order or whatever they want to call it; Then you must believe  Silver will stabilize at a much higher price. This is not about a spike to $150 and a sell off 2 days later. Although that is something we will eventually see.

This is about a plateau price for Silver in the $50s with launching pad prices higher over years. This is a revaluation from real necessary global demand, fractured supply chains, and a shortage of good collateral.  It will merely start with a paper short squeeze. This is not AMC or BBBY squeeze that can be printed away. It is a much bigger manifestation of structural deficit. Meme stocks were a warm up of opportunists taking advantage of structural imbalances for short term gains. Silver is a real market. The world just doesn't know it yet.

Try not to treat this like a meme stock and buy strength unless it is your risk capital. This is a structural problem and will only go away with Gov’t intervention at first, then CAPEX and innovation by private industry later.

And keep in mind, when a seller of an asset raises his bid to buy it back so publicly, like above, he is telling you something. If noone sells Silver back to him , he will raise his selling premium next because  there are no retail sellers out there.

Good Luck

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