BML Chart, page-2286

Very interesting!

As a commodities broker for many years, I have lived through and observed the type of cataclysmic market events and the effects on those on the wrong side of highly leveraged derivatives positions. A comparable event that comes to mind was the sudden sharp selloff in the stock market in October 1987, when the Dow Jones Average fell nearly 25% in a day. I personally knew many who had large short positions on put options on stocks, that to that point had been extremely profitable, until the stock market broke sharply and the losses suddenly became insurmountable to the point of bankruptcy. A more recent example was the meme stock episode of early 2021, when a stock like GameStop rose by more than 25 times in a few months due largely to short covering.

One of the unintended consequences of the 40-year COMEX silver manipulation and the failure of the regulators (both the CFTC and the industry self-regulator, the CME Group, Inc.) to end the manipulation earlier, is that it has lulled those short into believing the current price is somehow normal (otherwise no one would be short). However, just as there is no force more powerful on the price of a commodity than a physical shortage, there is no force more powerful in the world of derivatives than a short-covering panic. The impact on price brought about by an inevitable short covering buying panic in silver promises to be epic.

The greatest liability and danger rests, unfortunately, on the backs of those shorts apart from the big 8 COMEX shorts. If the 8 big shorts lean into the developing rally by aggressively adding shorts to cap and contain the budding silver rally, then the hundreds of millions of ounces of silver derivatives contracts held short by the unsuspecting non-big 8 shorts, may be temporarily spared the financial disaster that awaits them. If the big 8 don’t add aggressively to short positions, the financial nightmare for the unsuspecting shorts goes real-time.

It comes down to whether one thinks the current price of silver represents the true free market price according to the actual law of supply and demand and not some artificial price we’ve gotten used to following decades of artificial COMEX price-setting. Obviously, those short silver don’t suspect, in the least, that the price has been artificially manipulated – otherwise they would never be short. But if the price wasn’t artificially suppressed and manipulated, then why are we seeing signs of physical shortage abound and clear evidence that the short positions in silver derivatives seem excessive and dangerous to the shorts in numerous data points?

Furthermore, since there is no way on Planet Earth can those collectively short way more than a billion ounces of silver derivatives hope to ever acquire the physical silver necessary to close out their short positions by actual delivery, that leaves only the buyback on the various markets of the open short positions as a solution for closing out the massive amounts of shorts. While we await the answers to these questions, it would seem quite dangerous and ill-advised to be short silver in the interim.

Ted Butler

September 21, 2023