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Silver Squeeze: Is History Repeating?

Published 07/07/2021, 01:43 AM
Updated 07/09/2023, 06:31 AM
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“Silver Thursday” occurred on March 27, 1980 when three brothers attempted to corner the silver market. In just over a calendar year, the price of silver went up by 713% to just under $50/oz at its peak.

It was claimed at the time that the Hunt Brothers had 1/3rd of the world’s Silver in their possession, albeit a lot was held under futures contracts and not all physical.

Their aim was to realize enormous profits by holding and disrupting the supply across the globe. It was inevitable this would be halted at some point, and this is where “Silver Rule 7” was introduced by the Comex which took exception to their monopoly (the audacity!).

The rule targeted the brothers’ huge leverage they had used to accumulate their stockpile and when they couldn’t meet their obligations the price fell hard.

In 1988, after a large amount of their family fortune was wiped out paying for their margin call and bail out package, they were fined $134m for conspiracy to corner the market in silver, and eventually were left with no alternative than to file for bankruptcy. 
 
Fast forward to today and we don’t have a coincidence brewing in the background.
 
It is common knowledge the big banks and chiefly JP Morgan (NYSE:JPM) have had an influence on silver prices for years. They have been short paper, and long physical and the simple reason is they have been accumulating silver cheap, knowing full well it is considerably undervalued and has huge upside price potential.
 
JP Morgan has accumulated a reported 675 million oz of physical silver in recent years. In troy ounces that is just under 21,000 tonnes.

Other reports have suggested that the majority of their paper shorts were dumped when the price hit the lows of just over $11 per ounce in March 2020.

If this is the case, then JP Morgan now holds over 130 million oz more than the Hunt Brothers when they attempted to corner the silver market; and there was a lot more available silver in the world back then than there is today. When the price does go higher, no one is better positioned on earth than they are to make a huge profit.  
 
I’ve written many articles on Basel III since early 2021 and the likely affects of central banks stacking physical gold. My argument has always been that it is in the interests of the central banks (and the world for that matter) for prices to go higher and their balance sheets to be healthier because of it, even if it signifies the end of the dollar—which it will.

The global debt problem is a far bigger boil to lance and a revaluation event of some sort is the only way this debt is going to be paid off. JP Morgan has been using the same concept with silver, except for their own balance sheet.
 
The recent sell off in mid June saw silver go from above $27/oz to $25.50/oz in a matter of two trading days. Who in their right mind would sell physical for sub $26/oz? The answer is no one.

Is the dumping of paper contracts still taking place during paper smashing sessions? It would certainly appear that way when the smokescreen of a news article, 'Fed deliberation' or 'Non Farm Payroll' provides perfect cover.   
 
Once demand outweighs supply—and these figures are brimming now before a likely disclosure before the end of 2021—the real short squeeze will come.

Open interest levels towards the end of the July delivery month got interesting. There isn’t necessarily a silver shortage above ground, but there is a serious reluctance for anyone to allow it on the market at these levels.

With the stack of silver JP Morgan has, they have the potential to control the market’s upside in the same way the Hunt Brothers did, although on a much larger scale in today’s dynamic. 
 
With the propensity for the LBMA bullion banks to collapse towards the end of this year surging higher as the days elapse (given they cannot operate their unallocated proceedings any more in line with the new Basel III regulations) it will leave a huge gap in the market for an exchange for allocated silver.

It is highly likely the Shanghai exchange, with its vast swathes of physical gold will have a stronghold on the yellow metal market. But what about silver? Is JP Morgan lining itself up to replace the LBMA, but as a physical exchange? It would make perfect sense.

Whereas the Comex and LBMA have suppressed the market for years with paper games, this would be the exact opposite. With their huge levels of stock they could hold the market much like the Hunt Brothers' attempt in 1980.

And as for Silver Rule 7, as mentioned in the first paragraph? Well it is very similar to Basel III, as the clamp down on leverage on balance sheets—and a drive towards physical assets—ensues. History doesn’t repeat itself, but it does often rhyme. 
 
With the unallocated game soon coming to an end, owning physical and eliminating counterparty risk seems like the logical option—in gold, silver and other precious metals. It would appear this is what JP Morgan has recognized very early on, and we could be heading into a period where physical becomes very rare indeed.

When the Hunt Brothers had a crack 41 years ago, the percentage increase in a year would take today’s levels to north of $200/oz.

Doesn’t sound that far fetched, does it?

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