Silver Squeeze: Is That All There Is?
Everyone, whether interested in investments or not, has heard of retailer GameStop Corp.. The company, which trades under the symbol GME, appears to be on its last legs, a brick and mortar retailer which sells games that can now be purchased online.
Last March, when COVID fears caused the market to tank, GME hit a low of $2.57 a share. In September of last year shares went for $5 amidst talk of bankruptcy. In early January it traded for $17, a couple weeks later $43. Then, retail traders, who figured out over 120 percent of the stock’s float was sold short, rallied together on the reddit chat room WallStreetBets and piled into cheap out-of-the-money call options on the stock, forcing a short squeeze of the GME’s price. Hedge funds that were short, furiously bought shares to cover their shorts, pushing the price upward to $483.
For context, Almost Daily Grant’s explained, “GameStop is expected to generate $5.6 billion in revenue and $114 million in negative free cash flow for the 12 months ending in January 2022, down from $9.3 billion in revenue and $483 million in positive free cash flow in fiscal 2016.”
Meanwhile, silver bulls were attempting the same stunt to push up the price of the unloved metal. Peter Spina @goldseek tweeted “THIS IS MASSIVE -- JANUARY'S #SILVER INVESTMENT DEMAND (SO FAR) IS OVER 65 MILLION OUNCES #silver squeeze” TF Metals Report tweeted, “...Comex is ripe for a #silversqueeze. Note that just FOUR Banks are short over 90 days of global silver production. That's over 200,000,000 ounces!”
As it turned out, Mr. Whipple used to get more of a squeeze out of a roll Charmin than the great 2021 silver squeeze. The price went from $25 an ounce to $30 and back down within a couple of days. “Is that all there is?” Peggy Lee once sang.
If you rushed out to buy some silver during this faux frenzy, you noticed you couldn't buy one ounce silver coins for $30 if you wanted to. Michael Wittmeyer, CEO of JM Bullion told CNBC’s Brian Sullivan his company did over $27 million in sales on Sunday, January 31st alone. “The entire industry is frankly wiped out (of silver),” Wittmeyer said.
Geoffrey Caveney, writing on Seeking Alpha, reviewed the prices of major silver coin sellers and dealers and found, “the actual price of physical silver is at least $37/ounce and often higher.”
“The most basic and popular American Silver Eagle - not a special rare or antique coin with any extra markup value above and beyond its 1 ounce silver content - can be as high as almost $43,” he writes, “if purchased in a quantity below 20 ounces and by credit card or PayPal.”
You may wonder why the difference. The amount of paper silver to actual physical silver is astonishing. Steve St. Angelo wrote in 2017 on Moneymetals.com, “the paper notional silver trading ratio to physical silver investment was a whopping 517 to 1…” (original emphasis)
In another Seeking Alpha post of January 31, 2021, “In silver, the commercials and Central Banks are at major risk. According to the COT reports, they have about $35 billion in short positions. As silver rises, the short squeeze pressure on them increases massively. We appear to be heading into more lockdowns and the supply chain is being disrupted again. Gold and silver production may be hindered. We are running out of gold and silver inventory. Premiums are increasing tremendously in the cash market.
So what should silver be trading for? Ray Arnott, CEO of Research Affiliates, reminds us that the Hunt brothers pushed silver to $50 an ounce in 1980. If we start with that price and simply add 40 years of CPI (consumer price index) increases we end up near $250 an ounce. “So, is there room for silver to go up? Oh my goodness, yes," says Arnott.
Where are the Hunt brothers when you need them?
