The Silver Market is BROKEN - Prepare for the INEVITABLE

Key Concepts

• Silver Market Disarray: The current state of the silver market characterized by extreme shortages, high borrowing costs, and a disconnect between paper and physical prices.
• Short Squeeze: A situation where a rapid increase in the price of an asset is fueled by sellers who have shorted the asset, forcing them to buy it back to cover their positions.
• Free Float Silver: The amount of silver available for trading in the market, excluding silver held in long-term storage or by entities not actively participating in the market.
• LBMA (London Bullion Market Association): A key hub for global precious metals trading, currently experiencing significant liquidity issues.
• COMEX: A commodity futures exchange where silver contracts are traded, now potentially acting as a "vault of last resort."
• Diwali Festival: A major Hindu festival that drives significant demand for gold and silver in India.
• JP Morgan Chase: A major bullion supplier to India, reportedly facing difficulties in delivering silver.
• M2 Inflation-Adjusted All-Time Highs: Historical peak prices for gold and silver adjusted for inflation using the M2 money supply and 1980 CPI metrics.
• Monetary Reset: A potential significant shift in global monetary policy and financial systems.
• Unobtanium: A term used to describe a commodity that is extremely scarce and difficult to obtain.

Silver Market Heating Up: India Sold Out, London in Disarray

The silver market is experiencing unprecedented turmoil, with physical silver reportedly sold out in India and the London market in "rare disarray." This situation is driven by a powerful short squeeze, pushing benchmark silver prices above $50 an ounce, a level not seen in history except for one other instance.

London Market Breakdown

• Liquidity Vanished: According to Bloomberg, liquidity in London has "nearly vanished." Traders who have shorted the physical market are struggling to find metal and are facing steep borrowing costs to maintain their positions.
• Decreasing Vault Holdings: Data shows a significant decline in the amount of silver held in London's vaults. The "free float" or tradable silver has dropped from approximately 850 million ounces in 2019 to less than 200 million ounces currently.
• Skyrocketing Borrowing Costs: The scarcity of physical silver has caused the cost to borrow or lease silver to "skyrocket to levels we have not seen before," putting immense pressure on the market.
• Historical Precedent and Current Differences: In 1980, regulators intervened to quell a similar squeeze by restricting new positions on US exchanges. However, no such mechanism exists today. Relief is expected to come from increased physical supply, potentially through ETF liquidations or shipments from abroad.
• Air Shipments: Traders are resorting to costly air shipments of silver from the US to London to rebalance the market, highlighting the urgency and the collision between paper prices and physical reality.

India's Unexpected Shortage

• Diwali Demand Exceeds Forecasts: The Hindu festival of Diwali, a period of high demand for gold and silver in India, has seen demand exceed all forecasts.
• Pamp India Out of Stock: Pamp India, the country's largest precious metals refinery, ran out of silver for the first time in its history.
• Widespread Stockouts: Most dealers and coin sellers in India are "literally out of stock because silver is not there."
• Veteran Trader's Experience: Vipin Raina, a dealer with 27 years of experience, stated, "This kind of crazy market where people are buying at these levels, I have not seen in my 27year career."
• Global Shortage Spread: Shortages quickly spread beyond India, with international investors and hedge funds joining the buying frenzy, seeking refuge from a weakening dollar or momentum trading.
• JP Morgan Chase Delivery Issues: JP Morgan Chase, a major bullion supplier to India, has informed at least one client that it cannot deliver further silver until November, raising questions about their available reserves.

COMEX as a "Vault of Last Resort"

• LBMA Breakdown and COMEX Strain: A text thread from Eric Young ("Bob the Bullionaire") suggests that COMEX is now being used as the "vault of last resort" because the LBMA "broke on or about October 3rd."
• COMEX Free Float Decline: Data indicates that COMEX silver free float has lost 9.4% of its supply in 10 days, with projections that it could also reach zero.
• December Deliveries Looming: The looming December deliveries on COMEX, estimated at 110 million ounces, are expected to further deplete free float.

Increasing Demand and Future Outlook

• Global Demand for Precious Metals: There is increasing global demand for precious metals, with institutions like Morgan Stanley recommending a 20% allocation to gold in investment portfolios.
• Silver Becoming "Unobtanium": The current market conditions suggest that silver could become extremely scarce ("unobtanium") in the future.
• Prudent Investment: Investing in gold or silver now is considered prudent, even with current high prices, as they are expected to rise further.
• Inflation-Adjusted All-Time Highs:
  • Gold previously hit an inflation-adjusted high of $11,500 in 1980 (using 1980 CPI metrics from Shadow Stats).
  • Silver reached an inflation-adjusted high of $668 an ounce in 1980.
  • Current prices for both metals are well below these historical inflation-adjusted peaks.
• Gold's Share of Global Assets: Gold currently represents 6% of global investable assets, compared to 22% in 1980, indicating significant room for growth.
• Monetary Reset Potential: The current situation is viewed not just as a replay of the 1980s but as a potential "once-in-a-lifetime monetary reset," which could drive gold and silver prices even higher than previous inflation-adjusted highs.
• Current Silver Price and Floor: Silver is currently holding steady above $50 an ounce, with a recent dip on Friday potentially presenting a buying opportunity. The sustained price above $50 suggests a floor is being established.
• Price Predictions: Some analysts are suggesting silver could reach $60 or even $70 an ounce this year.

Conclusion

The silver market is in a state of extreme tension, characterized by physical shortages in key markets like India and a breakdown in liquidity in London. A powerful short squeeze, coupled with robust global demand and potential structural shifts in monetary systems, is driving prices higher. While gold is currently leading, silver's trajectory suggests it is poised for significant further gains, potentially reaching levels not seen in decades when adjusted for inflation. The current market dynamics indicate that acquiring physical gold and silver may become increasingly challenging and expensive.