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Silver: A Sure Thing?

I have contended for the past near-40 years, that silver has been manipulated and suppressed in price by means of excessive short selling on the COMEX, mostly by commercial traders which happen to be mostly banks. As a result of this decades-long price suppression, the law of supply and demand has become artificially distorted. The low price has reduced supply and current production and increased demand (both industrial and investment) to the point where a wholesale physical shortage has emerged.

Since a physical shortage is the most bullish circumstance possible in any commodity, it stands to reason one should expect silver prices to climb sharply to address the deepening silver shortage - thus, the high degree of bullishness I’ve expressed. But it is not enough to be extremely bullish. Proper appreciation must be given to the past 40 years of price suppression. To see where the price of silver is headed, one must understand the mechanics of the COMEX price suppression.

The reason why I’m so bullish on silver at this time is because I think the big commercials won’t add to short positions aggressively on the next silver rally. Knowing that they won’t add aggressively to shorts someday is a certainty and what makes it a certainty is the deepening physical supply/demand shortage. That’s why I’m so bullish that I am jumping out of my skin.

We are getting close to the point where futures contract positioning on the COMEX, which has been the sole determinant for the price suppression in silver for 40 years, is about to run its course as the main price influence. Should the big commercial shorts on the COMEX stand aside from aggressively adding to short positions, it means the game has changed and physical investment demand and industrial user inventory stockpiling will set prices. That’s when you are really going to have to hold on to your hats.

There is growing evidence that a physical “run” on silver is already underway in the silver ETFs, led by SLV, the largest, but also in other silver ETFs. This also involves the PSLV, with a withdrawal of 1.7 million ounces.  There can be no doubt that silver is leaving the SLV and other silver ETFs. In the prior week, more than 6 million ounces came out of SLV, with this week’s withdrawals topping 7 million ounces in SLV alone, plus more in other silver ETFs. At a time of a fairly strong price rally, it is highly counterintuitive for any silver to be leaving, as strong prices usually lead to deposits in SLV.

The standout, by far, in last week’s silver COT report was the refusal of the big 4 and big 8 commercial shorts to add new short positions and, in fact, their buyback of short positions on what was a sharp silver rally. And with the deepening and obvious physical silver shortage picking up steam every day, there is not the slightest suggestion these big shorts should want to add shorts at a time of the first genuine physical silver shortage in history.

The net result of 40 years of illegal speculative price determination and suppression on the COMEX has resulted in a physical silver shortage for the first time in history. You can see the evidence of the shortage all around, if you know where to look – like in the physical turnover in the COMEX silver warehouses and the bleeding of physical silver from the silver ETFs. At some point in the near future, the physical shortage will become so pronounced that it will overwhelm the sole price determinant until now – paper positioning on the COMEX.

The Code Red market emergency that I started writing about in July is very much in full force and about to make its presence felt.  The prospects of a price explosion are now better than ever, thanks to the unmistakable deepening physical shortage and the likely continued refusal of the 4 and 8 big shorts to add aggressively to short positions. That silver will explode in price in the not-too-distant future looks like a sure thing. Don’t let any last-minute price smashes scare you out of silver positions, as such rigged downdrafts would appear to be the tail-end of a 40-year epic silver price manipulation.

(For those long-time readers, yes, I have used the title "A Sure Thing?" before, including back on Nov 18, 2008, when silver was close to $9 and would find itself close to $50 two and a half years later).

Ted Butler

September 6, 2023

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