Hi, in my previous silver review: The case for 100 USD silver in 2021. The year of the SilverBack! I touched on several basic things you need to understand about silver and its usecases:
- What is silver?
- Silver as a monetary asset.
- Production of silver by countries.
- Silver as an investment.
- The biggest silver mining companies (2020) by 12-month trailing (TTM) revenue.
- Silver ETF's.
- Common knowledge.
Today I want to offer some insights into the recent WallStreetBets silver-squeeze strategy.
Who is WallStreetBets?
WallStreetBets, also known as WSB, is a subreddit founded by Jaime Rogozinski, where participants discuss stock and option trading. It has become notable for its profane nature, aggressive trading strategies, and role in the GameStop short squeeze that caused losses on short positions in U.S. firms topping US$70 billion in a few days in early 2021. The subreddit is famous for its colorful jargon and terms.
This growing group of users has found a way to fight against the establishment who bankrupted so many by using their own methods against them by shortsqueezing the American video game retailer GameStop (NYSE:GME).
What is a shortsqueeze?
The initial short squeeze triggered a rush to buy shares to cover positions by several hedge funds that were vulnerable because they had shorted the stock. Short selling is a finance practice in which an investor, the short-seller, borrows shares and sells them, hoping to buy them back later at a lower price, profiting from the return on this speculative investment.
WallStreetBets saw the vulnerability of the hedge funds and used their strategy against them, knowing that their risk carried an unlimited risk of losses. In other words: the hedgefunds had no other option than buying the stock, pushing the price even higher.
Why a silversqueeze?
WallStreetBets published a post about the Silver Squeeze, in which several facts are displayed:
- The amount of shorted silver is several times bigger than the real physical silver, making silver a potential market that offers opportunities if enough people decide to buy silver. In fact: to control the price of silver, the shorts and the COMEX are in a fight to keep pushing silver prices lower. How is the silver market manipulated? Easy: the players who want a low silver price sell non existing paper silver to people who then believe they are exposed to real silver: NOT. Exactly the same happens to gold and the gold price.
- Where GME was subject to a 140% of the 'float' being sold short, silver is subject to an astonishing 573%, making it several times more risky for the shorters who manipulate the silver price of the coins people hold physically.
- It is comparable to a bankrun, where if enough people demand their paper money, the bank simply wouldn't be able to give it to them.
- And WallStreetBets believes it gets worse: what if the COMEX has no silver, but only has a trading mechanism that allows them to, you know, buy and sell non existing silver which they package as paper contracts only. They sell people paper silver and for their business model to succeed, they need to control the silver price.
- Further reading of the article posted by WallStreetBets indicates that 85% of the physical silver in the LBMA vaults belongs to the SLV silver ETF. The COMEX therefore can not use that silver to fill the gaps and reinforce its registered stocks, making a silver squeeze possible.
- Several silver ETF's now mention in their prospectus they might not be able to deliver physical if people demand it. This then again protects the hedge funds.
- SO: bottom line: if people want exposure to silver, they NEED to buy it physically or they simply have no guarantee they'll own any silver when shit hits the fan. And it's exactly the same with gold.
My silver forecast:
- The demand for physical silver will continue to grow, as humanity chooses to go for solar panels, electric vehicles and further space exploration, all of which demand more silver while the supply is going down;
- One of the reasons that the supply is going down is because people are buying silver, understanding that the monetary expansion will tax them by inflation of their currency. Silver has become a must-owned asset allocation for people to protect their wealth.
- Another reason is that the suppression of the silver price has stopped the industry from opening up new dedicated silver mines.
"In the end, the goal of buying silver should be to end the manipulation of these markets. We need to get to the point where entering into a contract to sell silver means you actually have the physical silver to sell. No more naked shorting and profiteering off the little people. An honest silver market is the ultimate goal here."
Disclaimer: This is by no means financial advice, only a summary of good to know silver facts.