Silver, is the squeeze on?
and a portfolio update
There has been a small community on reddit dedicated to silver since the beginning of last year. This place can be a real echo chamber if you don’t watch yourself. These guys have been “stacking” silver for a few years now and constantly post pictures of their silver holdings and silver memes.
The hype around silver on wallstreetbets really hit its stride in late January 2021. The wallstreetsilver subreddit was started and there was an incredible run-up in the price of silver over a very short period of time.
User TheHappyHawaiian put out an incredibly long post about the SLV ETF, silver, and how SLV doesn’t really hold any silver. The big takeaway is don’t invest in SLV. PSLV is the better alternative but the best alternative is physical bullion holdings. It is a long read with a few gems of knowledge. This is one that is particularly insightful.
Industrial players and large-scale investors who want to acquire large amounts of physical silver don’t typically do it through the futures market. They instead use primary dealers who operate outside of the futures market, because taking delivery of futures is actually a massive pain in the ass. They only do it if they really have to. Deliveries only surge in the futures market when supply is so tight that silver from the primary dealers starts to be priced at a large premium to the futures price, thus incentivizing taking delivery. Despite setting the index price for the entire silver market, the futures exchange is really more of a supplier of last resort than a main player in the physical market.
The major players in the silver market aren’t actually in the futures market. This means that the futures market would be a lagging indicator for stress in the silver market. The real indicator would be the spread between the futures market and what the industrial players are paying. Unfortunately I have not be able to come up with an easy way to track what these guys are paying (if you have something, please share!). In lieu of that spread, I’m looking at the premiums for physical bullion and things are looking stressed.
This idea has also picked up steam on twitter.
We’ve also seen a steep reduction in silver held at LBMA vaults.
The COMEX is seeing the same thing.
While I’m not much of a fan of WallStreetSilver, I do believe that a squeeze is coming. I also believe that miners will provide the best returns if silver prices begin a run higher. These things can take a long time to play out. It takes time for the conditions to be right but when they are, things can happen very quickly.
Which makes me glad that I’ve got a few miners in my portfolio. Here’s an update of what I’m holding: