Silver Short Squeeze - $100 Dollar An Ounce?

The silver market is in a short squeeze. But it's not what you think!Show more

While it's true that the silver market has been under pressure for the past two years as demand continues to grow and supply dwindles, a massive silver short squeeze is simply unrealistic.

Social media pundits would have you believe that silver could see a run similar in price comparable to $GME (Gamestop) or $AMC. These stocks went on an absolute tear this year because of massively overleveraged short positions by big Wall Street hedge funds.

But there are a few reasons why what happened to stocks like GameStop and AMC Entertainment won’t happen to silver miners.

1. Nobody is betting against them. There are very few institutional short positions compared to GME and AMC. Because silver has a great future outlook, most investors aren't looking to short silver miners. The largest short position on a silver miner is around 20%. Compare this to Gamestop stock where the short position is at a massive 120%. A lack of short interest means no short squeeze.

One of the easiest ways for traders to play the #silversqueeze is to target the silver miners, most of which have secondary listings on the NYSE or NASDAQ. But the volume traded on these stocks is tiny in comparison to GME stock.

2. Retail investors don't have the capital required to significantly move the silver markets. Sure they can temporarily raise the price of the mining stocks but if those prices rise too quickly, professional traders will take profits and lower prices back to initial levels.

Additionally, silver has whats known as a commodities futures market. This is completely different than trading mining stocks on Robinhood and requires massive amounts of capital to move the markets. And if prices rise too quickly the CME (Chicago Mercantile Exchange) will raise margin maintenance requirements higher to handle the volatility. Which means traders need even more money to create a trade. And unlike most stocks, trading silver products on the CME includes very high initial margins and maintenance margins of $15,000 and for physical delivery of 5,000 ounces of silver. This means that if silver is trading at $30 an ounce traders are on the hook for $150,000 ($30 x 5,000) of physical silver. That is unless they offset this contract by selling an equivalent futures contract. This gets very expensive very quickly. Silver futures can really even be traded without $100,000 in capital. Which prices out nearly all retail traders.

To truly cripple the shorts in the silver sector, over 200 million ounces will need to be purchased for the synthetic derivative and paper contracts to be exposed. Which is over $6 Billion in new silver demand purchased and requested every single day.

3. Over 80% of the long silver positions held on the CME were by hedge funds, producers, swap dealers, and industrial users. Hedge funds are trading nearly the entire volume of silver on the CME. In fact, over a week before WSB (Wall Street Bets) decided to shift its attention to silver, funds like BlackRock, Sprott, and Aberdeen Standard, to name a few, had the foresight to add almost $600mm to their silver ETP holdings.

Essentially the big firms hold all the cards in the futures markets, while the CME controls volatility with legal rule changes that price out retail traders. Add this to the fact that short interest on silver miners is very low, as is the volume traded which means there won't be a silver short squeeze of anything comparable to $GME.

When silver Booms, it moves fast and swift. But when it busts and there’s no-bid, it collapses just as hard…There’s no doubt that retail investors, in their latest insurgent efforts, are helping to drive up the share prices of silver ETPs and silver miners.

But they aren’t the ones driving up bullion prices.

So powerful, in fact, that Robinhood had to band together with other brokers and banks like Interactive Brokers, Charles Schwab, and TD Ameritrade to put a block on buying more GME stock.

Retail investors have proven they’re a force to be reckoned with…

We’re just in the early stages of an upcoming silver bull market and rest assured Katusa Research will tell you how to get ahead of the curve on this trend so that you can stay competitive in an increasingly global market.