Silver Keeps Leaving Comex, As U.S. Secretary Of State Confirms Countries Are Leaving Dollar

Arcada Economics - February 10th: Silver Leaving COMEX, De-dollarization & Market Analysis

Key Concepts:

• COMEX: The Commodity Exchange, a futures and options market for precious metals like silver and gold.
• Backwardation: A market condition where the futures price of a commodity is lower than the spot price, indicating immediate demand.
• De-dollarization: The reduction of the US dollar’s dominance in international trade and finance.
• Open Interest: The total number of outstanding derivative contracts (futures or options) on an asset.
• Registered vs. Eligible Silver: Categorization of silver held within the COMEX system, impacting storage costs and availability for delivery. Registered silver is immediately available for delivery, while eligible silver has lower storage costs.
• Strategic Stockpiles: Government reserves of critical materials, including precious metals, for national security and economic stability.
• Spoofing: A manipulative trading practice involving placing orders with the intent to cancel them before execution, creating a false impression of market activity.

1. Silver Leaving the COMEX & Market Dynamics

The primary focus of the broadcast is the significant outflow of silver from the COMEX. As of February 10th, a substantial amount of silver has already left the exchange, though a considerable quantity remains. The silver spread between New York and London is currently in backwardation (29 cents), which is believed to be facilitating the movement of metal out of the COMEX and towards London and other destinations.

Over the past month, silver experienced volatility, rising to $121.78, falling to a low of $61.90, and rebounding to around $80. This price action is contrasted with the relative stability of gold. Gold experienced a $30 drop (which would have caused significant reaction in the past) while silver fell $2. Despite a recent large selloff, gold is only $63 away from its all-time high. The speaker expresses increasing confidence that the gold price will be higher in ten years than it is today, despite acknowledging the inherent unpredictability of financial markets.

2. Cocoa as a Precedent for Supply Shocks

The speaker draws a parallel between the current precious metals market and the recent surge in cocoa prices. Cocoa, traditionally trading around $2,500 per contract for 50 years, experienced a shortage and spiked to over $12,000 (a 5x increase). This serves as a potential preview of what could happen if a significant supply gap emerges in precious metals. The percentage increase in cocoa prices mirrors the volatility seen in silver. However, the speaker cautions that prices can also fall, referencing silver’s drop to $9 in 2008 despite a physical shortage.

3. COMEX Stockpile Analysis & Global Demand

The COMEX silver stockpile peaked at 531.88 million ounces on October 2nd, just before the observed market disruptions. Since then, approximately 140 million ounces have left the COMEX over the past four and a half months. This outflow coincides with rising premiums in China and India, suggesting increased demand in those regions.

Currently, the COMEX stockpile stands at around 390 million ounces, still historically large but below the 2021 peak. China’s silver inventories are down to 800 tons (25.7 million ounces), a fraction of London’s free float of approximately 141 million ounces (the amount underpinning their spot market). The speaker suggests that some of the silver leaving the COMEX is likely heading to London, India, and strategic stockpiles in both China and the US.

4. ETF Flows & Institutional Activity

Silver ETFs (like SLV) have seen significant inflows, with several instances of over 20 million ounces added in the last two years, including three times above 20 million since October. The Silver Institute’s recent deficit numbers do not yet include these ETF inflows, which were record-breaking last year. Interestingly, metal has been flowing into ETFs even as the price has fluctuated.

5. Bank Short Positions & Market Manipulation

The speaker discusses the short positions held by banks on the COMEX, noting a correlation between bank activity and price movements. While acknowledging the complexity of interpreting these positions (potentially linked to offtake agreements with miners), he points out that a historically large bank short position preceded the recent price surge. He references Bart Chilton’s description of “spoofing” as a potential factor in the recent price volatility. He also notes that the relationship between bank positions and price movements has become less clear recently.

6. De-dollarization & Geopolitical Implications

A key segment of the broadcast focuses on the growing trend of de-dollarization. US Secretary of State Marco Rubio recently acknowledged that Brazil has entered into a trade deal with China, conducting trade in their own currencies, effectively bypassing the US dollar. Rubio expressed concern that this could lead to a secondary economy independent of the US, potentially limiting the effectiveness of sanctions. The speaker notes that he has been discussing de-dollarization for some time, and it is now being recognized by mainstream political figures.

7. Trump’s Monetary Policy & Fed Futures

The broadcast includes clips of former President Donald Trump stating his expectation that the Federal Reserve will lower interest rates, potentially to as low as 1%. He indicated that his Fed pick would not have been chosen if they opposed rate cuts. Despite Trump’s statements, Fed futures currently only price in two 25 basis point rate cuts by the end of 2027, leaving a significant gap between market expectations and Trump’s desired policy.

8. Gold Stock Valuation & Reshoring

The speaker briefly discusses the potential undervaluation of gold mining stocks, citing Rick Rule’s observation that they are currently trading at roughly half the price (adjusted for gold price) compared to when gold was at $2,500. He suggests that reshoring efforts (bringing manufacturing back to the US) could further drive up gold prices due to inflationary pressures.

Notable Quotes:

• “It gets harder by the day to see the scenario in which 10 years from now the gold price is lower than it is today.” – Chris Marcus
• “They're creating a secondary economy in the world totally independent of the United States. We won't have to talk about sanctions in 5 years because there'll be so many countries transacting in currencies other than the dollar that that we won't even be able to sanction them.” – Marco Rubio
• “If you accept that the gold stocks are undervalued at $5,000 gold… I mean, some of these companies, and I don't think the market has factored that in yet.” – Chris Marcus

Data & Statistics:

• Silver COMEX Stockpile Peak: 531.88 million ounces (October 2nd)
• Silver Outflow from COMEX (Oct-Feb): Approximately 140 million ounces
• China’s Silver Inventories: 800 tons (25.7 million ounces)
• London’s Free Float (Oct 9th): Approximately 141 million ounces
• Cocoa Price Spike: From ~$2,500/contract to over $12,931/contract
• Gold Price Drop: $30 drop in gold would have been a major event in the past.
• Gold’s Distance from All-Time High: $63
• ETF Inflows: Multiple instances of over 20 million ounces added to silver ETFs in the last two years.

Conclusion:

The broadcast paints a picture of a rapidly evolving precious metals market, driven by a combination of physical demand, geopolitical shifts, and potential monetary policy changes. The outflow of silver from the COMEX, coupled with rising premiums in Asia and increasing de-dollarization efforts, suggests a fundamental shift in the global financial landscape. While acknowledging the inherent volatility of the market, the speaker expresses a bullish long-term outlook for gold and silver, particularly in the context of potential inflationary pressures and a weakening US dollar. He emphasizes the importance of independent research and careful consideration of these factors when making investment decisions.