Ed Steer: Silver Rally Now Unstoppable, Price to Hit Triple Digits

Key Concepts

• Structural Deficit in Silver: A situation where the consumption of silver consistently exceeds its production, leading to a drawdown of above-ground inventories.
• Commercial Traders/Bullion Banks: Large financial institutions that actively trade precious metals, often holding significant short positions.
• Price Management Scheme: The alleged practice by bullion banks of manipulating precious metal prices, particularly silver, to keep them suppressed.
• Gold-Silver Ratio: The ratio of the price of gold to the price of silver, historically fluctuating but with a natural production ratio of approximately 7:1.
• Physical Silver Demand: The demand for actual silver bullion, as opposed to paper derivatives.
• Unstoppable Rally: A market trend characterized by strong upward momentum that is difficult to reverse.
• BRICS Plus: An economic and political bloc of emerging economies, seen as a rising force challenging Western economic dominance.
• Shanghai Futures Exchange: A major commodity exchange in China, considered a more physical market compared to Western exchanges.
• Backwardation: A market condition where the price of a commodity for immediate delivery is higher than for future delivery, indicating strong current demand.
• Unoptanium: A colloquial term suggesting a commodity is so scarce it becomes unobtainable, even at high prices.

Summary

The Silver Market: A Deep Dive into Supply, Demand, and Price Manipulation

Ed Steer, a seasoned precious metals analyst with 25 years of experience and a board member of the Gold Antitrust Action Committee, discusses the current state of the silver market with Charlotte McLeod of Investingnews.com. He highlights two primary drivers for silver's recent surge past the $50 level: the persistent mega-short positions held by large commercial traders and bullion banks, and an ongoing structural deficit in silver supply.

Commercial Traders and Price Suppression

Steer reiterates a point made over a decade ago: large commercial traders, predominantly bullion banks, have maintained massive short positions in precious metals, actively "shorting this rally all the way up." He notes that these entities are "stuck on the short side to the tune of I don't know 60 plus billion dollars" and are unlikely to ever fully exit these positions. Their current actions, characterized by "bare raids" on specific days, are seen as attempts to cover short positions before the next significant price increase. This price management scheme, Steer argues, has been in place since the US went off the gold exchange standard in 1971.

The Structural Deficit in Silver

A critical factor driving silver's value is the "ongoing structural deficit." According to the Silver Institute, the market has been in a deficit for nearly six years, with consumption exceeding production by 100-200 million ounces annually. This deficit has led to physical shortages, with London reportedly experiencing a "meltdown" and running out of silver. Steer believes the price should already be in the "triple digits" and that the current price action is an attempt by commercial traders to allow the price to reflect this fundamental imbalance.

Global Silver Flows and Demand

Steer provides specific data on the movement of physical silver. In the past 10 days, 30.8 million ounces of silver have been flown from COMEX in New York to London. Additionally, 15.348 million ounces (477 tons) have been withdrawn from the Shanghai Futures Exchange in the last eight business days, likely also heading to London. Significant shipments are also occurring out of Switzerland, though their inventory data is reported monthly.

The demand for physical silver is described as "voracious" and "rapacious." Key demand drivers include:

• India: Imported 22 million ounces in a recent month, representing approximately 100 days of global silver production. This demand is amplified by Diwali, India's biggest festival and wedding season.
• ETFs: Substantial amounts of silver are flowing into silver ETFs like SLV and SPAT.
• Retail Demand: After a period of subdued activity, retail bullion dealers are experiencing "unprecedented demand," with silver "flying off the shelf."

The supply chain from refiners to retailers is described as "50 miles across, but only about an inch deep," meaning that even moderate demand can quickly deplete inventories and lead to significant lead times for new supply.

Silver as the "New Gold"

Steer posits that silver has effectively become the "new gold." This is attributed to several factors:

• Affordability: Compared to gold, silver offers a more tangible and larger quantity of "bright shiny objects" for the same investment amount, appealing to retail buyers.
• Awareness of Supply-Demand Dynamics: Investors are increasingly aware of the structural deficit and its implications for future prices.
• Future Price Potential: With gold prices projected to reach $4,000-$5,000 per ounce, Steer anticipates silver prices to reach $200-$400 per ounce, and potentially even higher.

The True Market Price and the Gold-Silver Ratio

Steer emphasizes that the true free-market price of gold and silver has never been realized due to decades of price suppression. He references the work of silver analysts like Ted Butler. The current gold-silver ratio is around 82:1, significantly deviating from the historical average of 15:1 to 40:1, and the natural production ratio of approximately 7:1. Steer believes this ratio will eventually converge towards the production ratio, leading to exceptionally high silver prices relative to gold.

The Macroeconomic Shift and the Rise of the East

The current market dynamics are framed within a broader macroeconomic context of "the decline of Western civilization" and the "ascension" of the East, particularly China, India, and Russia, forming the "BRICS Plus" bloc. Steer suggests a shift in financial power from West to East, with the East buying physical metal while the West sells paper. He predicts that Shanghai, as a pure physical market, will eventually set the price of gold and silver, not New York.

China's Dominant Role

China is identified as a crucial player. It is the second-largest silver producer and the largest silver user globally. China has been actively acquiring silver ore and concentrate from South and Central America to control supply and drain North American smelters. Their inventories on the Shanghai Futures Exchange and Shanghai Gold Exchange are at their lowest levels since 2016, indicating a worldwide drain of silver from various global hubs.

Platinum and Palladium

Steer also touches upon platinum and palladium, describing them as "fringe metals" and "niche markets" that are primarily industrial. Both metals are experiencing structural deficits, with demand exceeding supply and drawing down above-ground inventories. He notes significant short covering in platinum, with banks being net long palladium by a small margin. Similar to silver, suppressed prices for decades have led to prices far lower than they should be.

Immediate Delivery Demand and Backwardation

The demand for immediate delivery of gold and silver is "off the charts." Silver is currently in backwardation, meaning it is more expensive to buy for immediate delivery than for future delivery, signaling strong current demand. Gold is also experiencing similar demand for immediate delivery, with large numbers of contracts being delivered. This indicates a "rapacious" demand for both metals, suggesting an impending supply deficit in gold as well.

Investment Strategy and Advice

For investors, Steer strongly advises:

1. Acquire Physical Metal First: Contact local bullion dealers and acquire physical gold and silver in various forms (rounds, bars).
2. Diversify Silver Stock Holdings: For those investing in silver mining stocks, avoid "rifle shooting" (picking individual stocks). Instead, invest in a basket of companies through funds like the 9point Silver Equities Fund (Canada) or SILJ (US).
3. Long-Term Perspective: Steer has been invested in precious metals for 15 years, with his entire net worth in physical metal or precious metal stocks, primarily silver. He emphasizes that this bull market is "just getting started" and has a "long, long way to go."

Conclusion

The current situation in the precious metals market, particularly silver, is characterized by a confluence of factors: persistent price manipulation by large financial institutions, a severe structural deficit in supply, and surging global demand from both industrial and retail sectors. The geopolitical shift towards the East, with China playing a pivotal role, is also a significant underlying trend. While short-term price dips may occur due to market manipulation, the fundamental drivers suggest a future of significantly higher prices, with silver potentially becoming "unoptanium" at any price. Investors are advised to secure physical metal and diversify their equity holdings in the mining sector for long-term gains. The current era is described as a "major, major shift in financial power" that will be historically significant.