#SilverSqueeze – What actually happened and why the #SilverSqueeze didn’t work out as planned

I believe most have read about the recent Reddit group that has spurred on many other retail investors to short squeeze stocks that hedge funds have big short positions in. The idea is to drive prices of the stock high enough to force the hand of these hedge funds to buy back the stocks they have borrowed to sell, at a loss.

Why didn’t this work with the Silver Market?

The commodities market doesn’t work the same way as the stock market. The shorts reported by 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. Most of these short future positions are to hedge physical Silver exposure or miners to secure prices in the future to deliver mined Silver against. In other words, these short future positions are being offset with physical bars and coins held in their inventory.

Another 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 big position. For example, the trader in a bank has bought a sizable amount of Silver from a fund and yet to sell it out in order not to move the Silver price too drastically. This ride up in Silver prices allows them to hedge out their risk at a much higher profit and due to the larger number of buyers available, it will also allow them to get out of their positions even earlier and at a tidy profit.

Bottom line is, we do not see the full picture from the reports provided via CME or COTR.

The financial institutions raised margins to prevent Silver prices from soaring, is this true?

Margins were raised by 18% by Comex but this was not because the institutions wanted Silver prices to stay low. Many brokers followed suit. Margins for trades is a function of volatility. The higher the volatility the higher the margins required. This is for risk management and also to protect the interests of investors. This will happen for any asset class not only for Silver. This often has been misconstrued by many to think that the institutions did this on purpose for their own gains.

Physical Silver premiums shot up sharply, does this mean there are not enough physical Silver?

Physical Silver premiums came up at least 30% or more but it does not mean that physical Silver have all ran out. The sudden sharp increase in physical demand from clients globally due to this Silver squeeze coupled with the Covid-19 measures implemented in mints and refineries lead to a short term tightness of physical Silver bars and coins. There are still large Silver bars available in many vaults around the world but they are not the preferred choice for retail investors.

The manpower restrictions due to Covid-19 also meant that production schedules for Silver finished products have to be extended especially with this huge increase in demand. These factors led to the increase in premiums and it will ease once the Silver orders backlog has been met.

Brian