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What Is Going On With Silver?

What a wild ride in silver!

In just one week, silver prices blasted off from under $24.75 to over $30, and then silver plunged right back down to under $27 again! While in the long-term, yes, this is going to be one great ride in silver for silver investors, now that several days of the so-called "Reddit-inspired silver squeeze" have gone by, and the attention to the cause is arguably waning, some unfriendly forces have emerged and appear to be weighing down on the price of silver in the short-term, and if not outright weighing down on the price, then at the very minimum, stemming the rising tide. While this can be an emotional rollercoaster for many people, especially people trading into and out of financialized, paper silver market positions, which I do not recommend doing, the key is to understand that any pressure on silver here is short-term.

FACTORS WEIGHING DOWN ON THE PRICE OF SILVER IN GENERAL

There are a couple of general factors that could be weighing down on the price of silver right now, as far as the "conventional wisdom" goes, and I say that because some of the givens are not necessarily givens at all, which is the subject of a different article some other day, but for now, I'll briefly mention some of the short-term pressures here.

In no particular order, factors weighing down on the price of silver in the short-term:

  • The US dollar index has continued to see some strength.
  • Interest rates have moved above 1.0% again (1.12%).
  • The stock market is moving back towards all-time highs again, meaning it's 'game on' for risk assets.
  • Fear in the market is subsiding after a spike in the VIX.
  • Biden's first round of Federal fiscal stimulus is stuck in political gridlock.

FORCES PUSHING BACK AGAINST THE "SILVER SQUEEZE" SPECIFICALLY

First and foremost, well, since the subject of “manipulation” is so controversial for some reason, I’ll just go ahead and let the US Treasury Department say it directly:

In other words, the most common word used to describe this group is the “Cartel”, but that is not some shadowy group as the name might imply, but rather, it’s quite simply the Exchange Stabilization Fund, the Fed, and agents acting on behalf of one or both, and the thing about the Cartel is, and I’m not making this up, but rather, understanding the statement above: The ESF can intervene in any market it wants, for any reason.

And that's just three tiny paragraphs about the ESF. There is a huge rabbit hole to explore for anybody who likes adventure.

But aside from outright manipulation, there are other things that can give silver some trouble with breaking out right now, and those would be mainstream media propaganda, CFTC actions & statements, and margin hikes, just to name a few.

Yesterday, as silver was falling in price, the mainstream media did one heck of a job of lumping silver into the same grouping as GameStop (Bloomberg screenshot for emphasis and commentary):

That’s dishonest at best!

The price action in silver can’t be compared to the price action in GameStop, at all:

Regardless, this is typical mainstream financial media propagandist spin so as to keep eyes off of silver before all else, in my opinion, and when it is not possible to keep eyes off of silver, such as what happened over the weekend and on Monday as bullion dealers were running out of silver inventory and as the silver price was surging to its highest price in many years, the mainstream media will simply cast silver in a negative light.

In addition to the anti-silver propaganda coming out of the mainstream, we’ve got the CFTC more or less saying it is monitoring the action in silver and is prepared to act. Furthermore, we saw the CME Group hike the margin requirement for silver futures contracts by 18%, an action which can cause traders to be forced to sell their long positions if they can't pony up the extra margin (money) required to maintain their positions. Margin hikes also make entering a silver long position more costly than it was just a day ago, and so some speculators simply now can no longer afford to pay the current margin requirement to enter the market and speculate on a "silver squeeze".

That is a gross oversimplification about both the CFTC, which I didn't even really get into, and silver futures contract margin hikes, but the point is this: Those hoping for “the epic silver short squeeze to end the silver manipulation once and for all” will likely be disappointed in the short-term, and even more so now as it appears there are certain interested parties that are doing whatever they need to do to make sure silver does not rise as fast as it otherwise would rise if these measures were not taken, or possibly even ram the silver price back down into the low $20s or worse.

In my opinion, It’s more likely that the interested parties are trying to slow the rise as it is to outright smash silver's price because, well, let's face it: Actual physical supply is tight, and not just with US gold & silver bullion dealers, but worldwide, and adding fuel to the supply tightness fire is that industrial use of silver (solar, EVs, biotech, etc) is growing right along with the skyrocketing investment demand.

Silver will rise, but not so much because of some shadowy group with questionable motives on an anonymous online forum, but rather, because of the fundamentals that are simply too strong right now to keep silver down in the $20s for long.

The question is, how high can silver eventually go?

For now, if we could just get over $30 and quickly tag all-time record highs, I’d take that as a start:

Silver did, after all, increase by more than 150% in just five months in 2020!

Here's a look at why silver drew so much attention on Monday specifically:

Multi-year highs!

Gold's reluctance to move is also perhaps weighing down on silver right now, and trading below its 200-day moving average doesn't help:

Of course, gold's already hit all-time record highs, and silver's still a country mile away from them, so there's that.

Regardless, the gold-to-silver ratio has plunged:

If silver catches back down to gold's lack of movement, however, the ratio will head back up and quite possibly back up into the mid-70s.

Palladium continues to bang around inside of its sideways choppy channel:

Palladium is performing as expected, and my call for palladium continues to be to mark time until the other three precious metals catch-up.

Like silver, platinum has also seen some price swings lately:

In these early days of the second month of 2021, platinum is slightly above water, year-to-date, while silver is slightly below water, year-to-date.

Check-out crude oil:

Almost at 52-week highs!

Copper continues to correct but has refused to crash:

Because I think the US dollar's "strength" will be relatively short-lived, and because crude oil is rising in price, I'm expecting copper to get turned around to the upside here soon, and I am not expecting a crash.

That said, if the stock market crashes, all bets are off until the dust settles, however.

The VIX has settled, for now:

What, was that just one little, slight pucker moment there, or a taste of things to come?

Regardless, the stock market is right back to within spitting distance of all-time record highs:

And at this point, it's amazing to see so many people so convinced that an epic stock market crash is coming, all the while so many people are also so convinced that the stock market can never crash!

Who will be right?

No matter who's ultimately right about the stock market, nobody wins by loaning the US government money for ten years:

Because even if interest rates are rising, if rates are not rising faster than the rate of inflation, then that US Government Paper is losing value, and purchasing power, over time.

Speaking of purchasing power:

Enjoy it while you've got it.

Thanks for reading,

Paul Eberhart

 

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Paul Eberhart
Paul Eberhart
Senior Market Analyst and Columnist

Paul Eberhart has been actively trading and writing about precious metals for more than a decade. A U.S. Army Iraq War Combat Veteran, he holds an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill.

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