Silver Breakout - Mike Maloney on What Comes Next

Key Concepts

• CME Circuit Breaker: A mechanism that temporarily halts trading in financial markets to prevent excessive volatility.
• Silver's Bull Run: A sustained period of increasing prices for silver.
• Money Unraveling: A concept suggesting the erosion of confidence in traditional currencies.
• Eroding Confidence: A decline in trust in financial systems and institutions.
• Price Signals: Market prices that reflect supply and demand dynamics and investor sentiment.
• Monetary Metal: A precious metal, like silver, that has historically served as a medium of exchange or store of value.
• Derivatives Trading: Trading of financial contracts whose value is derived from an underlying asset.
• Margin Requirements: The percentage of the purchase price of a security that an investor must pay for with their own money.
• Position Limits: Regulations that restrict the number of futures contracts a trader can hold.
• Cup and Handle Pattern: A bullish technical chart pattern in financial markets.
• Hunt Brothers: Investors known for their significant involvement in the silver market in the late 1970s.
• Fiat Currency: Currency that a government has declared to be legal tender, but it is not backed by a physical commodity.
• Liquidation Orders Only: A trading rule that only allows the closing of existing positions, preventing new ones from being opened, which can drive prices down.

CME Circuit Breaker and Silver's Bull Run

The video discusses a recent event where trading was halted across various CME (Chicago Mercantile Exchange) markets, including futures, derivatives, currencies, gold, and silver. This halt was attributed by some to a "cooling issue" in a data center that exceeded its capacity. However, the speaker suggests that regardless of the exact cause, the fact that trading was stopped is significant.

Key Points:

• The CME circuit breaker was triggered, causing a temporary pause in trading across multiple markets.
• The immediate reaction from "silver people" was to attribute the halt to silver's out-of-control price action, suggesting it "broke the system."
• While a cooling issue in a data center is a plausible explanation, the speaker emphasizes that the underlying reason is less important than the implication for the current market cycle.
• Ben Rickard's tweet is highlighted, stating, "Money is unraveling. Confidence is eroding. Price signals are returning, and silver, which is money, is the underestimated monetary metal. Monetary means money is leading the way. The bull run didn't pause, the exchange did. That tells you everything you need to know about where this cycle is going." This quote underscores the idea that the market halt signifies a deeper issue with the financial system and the resurgence of silver as a leading indicator.

The Role of Silver and Market Fundamentals

The speaker posits that silver is leading the way in the current market cycle, with its bull run being a significant factor.

Key Points:

• There are indications of very low stock levels in London, suggesting strong supply-demand fundamentals for silver.
• The "silver people" immediately blamed silver for the trading halt, implying it was "out of control."
• The speaker acknowledges this as a "reasonable possibility" but reiterates that the exact cause of the halt is secondary to its implications.

Technical Analysis and Breakout Confirmation

The video delves into technical indicators to support the bullish outlook for silver.

Key Points:

• Moving Averages:
  • The 50-day moving average (orange line) has provided consistent support for silver's price.
  • The 10-day moving average (green line) also acts as support during uptrends, and its breach can indicate a pullback.
  • Silver has visited its 50-day moving average three times, which has helped it work off overbought conditions.
• Breakout Confirmation: Silver has experienced a breakout, trading more than 3% above previous highs, which is considered confirmation of a significant upward move.
• Cup and Handle Pattern: The speaker identifies a large 45-year cup and handle pattern on silver charts, which, if confirmed by a breakout, signals a strong bullish trend. This pattern is described as a "big old beer stein."

Historical Parallels: The 1970s Silver Market

A significant portion of the video is dedicated to drawing parallels between the current silver market and the bull market of the 1970s, particularly the actions taken by authorities to curb the Hunt brothers' silver holdings.

Key Arguments and Evidence:

• Hunt Brothers' Concentration: The Hunt brothers held a major concentrated position in the silver market, making them a target for intervention.
• Federal Reserve Involvement: The Federal Reserve, under Paul Volcker, was involved in decisions aimed at controlling gold and silver prices to protect the dollar, which had only recently become a fiat currency.
• Market Size and Control: Silver's market was significantly smaller than gold's (around 1/30th), making it easier to manipulate.
• Escalating Margin Requirements: To combat the rising silver prices, margin requirements were repeatedly increased. The transcript lists specific dates and percentage increases:
  • September 13th: Gold margins raised by 6.7%.
  • September 25th: Gold margins raised by 6.3%, silver by 6.7%.
  • October 9th: Gold margins raised by 5.9%, silver by 9.4%.
  • October 16th: Gold margins raised by 5.6%, silver by 8.6%.
  • October 23rd: Gold and silver margins raised by 5.3%.
  • The speaker notes that these "shenanigans" have not yet begun in the current cycle.
• Position Limits: When margin increases weren't enough, position limits were introduced, restricting the number of futures contracts traders could hold. This forced large players to sell significant amounts of silver.
• "Liquidation Orders Only" Rule: The most drastic measure was the implementation of a "liquidation orders only" rule for silver. This rule effectively stated that the price of silver could only go down, as only existing contracts could be closed, and no new ones could be opened. This created a situation with sellers but no buyers, forcing the price down.
• Impact on Gold: The speaker argues that the intervention in the silver market had a ripple effect on gold. The gold pit was located next to the silver pit on the CME, and traders likely feared similar actions against gold. This led to a simultaneous peak in both gold and silver prices on the same day.
• Motivation for Intervention: The speaker suggests that many individuals running the commodities exchange were heavily short silver and would have gone bankrupt if the price continued to rise. Therefore, they had a vested interest in driving the price down.
• Dollar Survival: The primary motivation for these interventions was to prevent the collapse of the US dollar, which was still relatively new as a fiat currency.

Current Market Dynamics and Future Outlook

The video concludes by suggesting that history is repeating itself and that the current silver breakout is occurring around the same time as the 1979 breakout.

Key Points:

• The current breakout in silver is happening approximately 40-odd years later, mirroring the November 1979 event.
• The speaker anticipates that by January of the following year, "very, very high prices in silver" could be seen.
• To account for currency expansion and GDP growth, the speaker suggests that the price of silver might need to move "this decimal one place to the right," implying a significant potential increase.
• The speaker believes that the "shenanigans" seen in the 1970s, such as margin increases and position limits, have not yet been implemented in the current market.

Conclusion and Takeaways

The core message of the video is that despite the temporary halt in trading due to a technical issue, the underlying bull cycle for silver is intact and likely to continue. The historical parallels drawn with the 1970s suggest that authorities may intervene to control prices, but the fundamental strength of silver, coupled with eroding confidence in traditional currencies, points towards significant price appreciation. The speaker urges viewers to focus on the "big picture" and not get distracted by short-term noise.