The net effect of trying to squeeze the silver is that "you will lose your money" said Jeff Christian, managing partner of CPM Group.
Well, it looks like the silver squeeze it's still happening. And I'll explain why. Uh, Jeff Christian managing partner of the CPM group is here to discuss silver and what happened last month and how the markets are still reacting to what happened last month. Jeff. It's a very interesting discussion we'll have today.
I'm looking forward to it. The CPM group is launching a report this Thursday talking about the silver squeeze and some of the things they got wrong. You were telling me offline. Why don't you start by introducing us a synopsis of this report? Okay. Well, yeah, the silver report that we're releasing on Thursday, isn't actually about the silver squeeze.
It's about the silver CPM group for the last 16 years. Has. Had a silver reception on opening night at the PDAC PDAC is virtual this year. So rather than do that, we will have a webinar at 11 o'clock Eastern time on March 4th, it's open to the public. And I get, I think Kitco is one of the distributors and media partners in, in that project, but it's going to be a global webinar covering silver.
And simultaneous to that webinar, we'll produce a report, a small report as we have for the last 16 years with the silver, uh, reception that the PDAC now, obviously one of the topics that we'll cover is the short squeeze and what they got it wrong. We'll show some data about what happened with ESL V in the first week of February, I would show them data about the enormous amounts record amounts.
Of silver that's held in bullion form the delivery guilt bully on farm in London, New York, Zurich, China. And why it is that there is no real shortage of silver. There's a shortage of like coins and small bars. Um, but there's no shortage of silver. Okay. I was a friend of mine actually texted me last night.
He said, check out this GoFund me. And what they're doing is they're raising money to short silver again. So they've raised about $77,000 so far. I think their goal is a hundred thousand dollars night and I, I'm not entirely sure what they're going to do with this money and how are they going to utilize it to short silver.
But anyway, I think it's a, there's still interest from at least the millennial crowd to continue their short squeeze trade. W what do you make of this? There, you know, the problem with these guys is they don't know what they're doing. They don't understand commodities markets. They have been playing with a free margin.
Freely margin, uh, equity trades on the equity market, where you actually have investors who will borrow silver, uh, shares of the stock of a company and sell those shares in the expectation that they can buy them back at the price falls, more cheaply to pay back their loan. So you do have short, you have, you have Norton naked shorts in the silver market as shorts in the commodities market.
You have some investors who do that. But the vast majority of the positions that you see as sharp positions. On the commodities exchange, uh, across commodities, actually our hedges of physical positions by commercial, uh, trade, uh, entities. Now, one of the mistakes that people who don't understand commodities markets make is they think that when it says commercial short position, they think that those are producers and refiners and fabricators commercial, industrial companies.
But in reality, most. Industrial companies do not trade directly on the futures market. They trade with banks or dealers because it's more convenient for them. They think. And then those banks and dealers will hedge their physical or OTC transactions with futures and options. So the commercials that get reported through the commitment of traders are actually primarily financial intermediaries banks and dealing companies.
And that's one of many mistakes that these guys don't understand. In addition to that, you had some problems because they were trying to squeeze the SLV ETF on the first week of February. And they didn't understand that there are the problems that arose. They did it, they misdiagnosed them. You know, and I can explain that if you really care, uh, what actually was happening there.
With the SLV, but it wasn't that the metal didn't exist in London the way they thought it was really a much of a more mechanical issue, which is clearing the volume of traits that they had. We really care. We're really interested to know why the, uh, the short squeeze didn't push up silver, above $30 an ounce people were expecting it to happen, but, uh, it kind of just fizzled out.
We didn't see the same effect as GME, AMC, all these other stocks w what happened there? I mean, there's a lot of theories as to. Why it didn't didn't work out. Some people suspected that it asks you did work, because what we saw was a run of the mill on the physical front, the bars and coins, the dealers were out of inventory.
So the premiums and the physical side. So the paper market didn't move up, but the physical side moved up. You saw premiums rise, right? So how you digest this? When you say the physical market you're talking about. Small products, coins, medallions, and small bars. And those premiums skyrocketed because small investors who didn't know what was going on in the futures market and with SLV got all excited that the price of silver was going to rise and they'd bid those things up.
There's also shortages of those small products because of the way mints and refineries have managed their production facilities to avoid the pandemic spreading across their people. Uh, and we can talk more about that. So that that's one of the things, the other thing is, you know, I would argue that. And, and in fact, in our report, we'll have a chart that shows you and w we'll show it on the webinar, the price of silver Rose in late June, January into early February, because of the roll of futures out of the February contract or out of the, I'm sorry, out of the March contract into.
Into the may contract. And that was one of the factors that was supporting the price at that time. Um, whether or not the SLV squeeze attempt actually had a lot to do with the price strength at that time is questionable and it's questionable for a variety of reasons. What about if you look at other markets, there were other commodities, including gold and platinum and palladium that were rising at the same time.
So. You don't know why they would be rising if people are focusing on squeezing the silver market. So it looked like it was a broader set of factors that were pushing silver prices up at that time, as opposed to the squeeze. So if a bunch of investors where a large community of investors buy the SOV ETF, does that have any effect at all on the underlying price of the commodity itself?
Silver. It can have an effect on a short-term basis. You know, the reality is, as I said, I mean, you have record amounts of silver in London and New York inventories. The SLV is very funny because some of these guys were talking about Colmex, silver and not having enough silver in New York to meet the SLV demand, which is not true.
You had enough, but it's totally not true because the SLV actually takes metal in London, not in New York. If you look the London inventories you're at record levels, you've got about 1.1 billion ounces of silver in London inventories about 450 million ounces of that is unallocated. So ostensibly it's ready.
More readily salable, although to tell you the truth. Uh, a big part of the, the allocated metal can also be sold to because it's, it's not that difficult. If you own allocated metal, it's not that difficult for you to say, gee, the price is 20%, 30% higher than when I bought it. I think I'll take my profits.
So there's plenty of silver around the issue that happened with the SLV is that if you look at the SLV trading volumes, not the trading volumes, but rather. The volumes of redemptions and additions to inventories on a daily basis. The, the average via the average day trade, somewhere between zero, are there a lot of days where there's no redemptions are additions to the SLV inventories, but you know, typically it trades between zero and maybe one or 2 million ounces of shares being added to, or taken out.
And it goes both ways. Uh, when. These guys tried to squeeze this thing. All of a sudden you shot up to like 95 million ounces of new additions to the SLV. And then they realized that there was a mistake and they liquidated, uh, about half of that, about 45 or 50 million ounces over two days. And you've got a system that clears.
On average, a couple hundred thousand ounces worth of silver SLV shares a day, sometimes a million or 2 million ounces worth of shares. All of a sudden that that system is needing to clear 95 million ounces. And it's just not there though. The, you know, the, the, so it wasn't that the metal wasn't there, it was that the capacity to clear 95 million ounces worth of SLV shares in a given day wasn't there.
Can you tie all this back into a recent YouTube video that you've done entitled silver futures contract default, not likely. And, uh, what do you mean by that? Well, you know, there are a lot of people, again, who consistently misunderstand purposefully or by accident, how the market works. So you've had people since the mid 1980s say that all there's not enough silver to meet all the demand.
And you're going to see a default in the silver market and you've had promoters primarily. People who sell precious metals products, touting to investors, Oh, the silver market's going to explode because there's not enough silver to meet all this demand. And there's these massive naked shorts that don't actually exist on the Comax and the silver market is going to get float.
And, you know, Kiko has interviewed me for 30 years about this, um, JP Morgan's can go bust Goldman Sachs can go bust Merrill Lynch before them Drexel Burnham in the 1980s, you know, had these massive naked shorts, which they didn't, but they're going to blow up in their face and you'll see these guys come on.
Kitco you guys like promote them and they'll say, Oh, you know, by October, the price of silver is going to be a hundred dollars because it was going to blow up and it doesn't blow up. Right. If you look at the ratio of say open youth, what they tend to do is they'll look at the ratio. two nettles and they say, okay, you know, there's big open interest, 700 million ounces or whatever.
Uh, and there's only 400 million ounces now of so registered or eligible in the New York market to meet that Comix, uh, demand. So we agree everybody who had opened interest takes delivery. The market blows up and defaults first off, it doesn't default. It just changes to a cash only settlement, or it results in a different way, which the bylaws of the COMEX have always had the capacity to do.
And they liquidation only order in the late 1970s, uh, when there was congestion in the silver market, um, related to, but not caused by the hunt. Uh, but what you need to do is you need to realize that 99 point X percent of those open interest, those trade contracts never get delivered upon. That's one thing that they don't get, you have to look at deliveries versus chairs and the ratio of deliveries.
Relative to the amount of metal that's in COMEX is at record low levels. There's never been more metal covering the deliveries, uh, at least since the 1980s. Um, so that's the other thing. And the other thing is you have to understand the deliveries are of warehouse receipts, not of silver. So obviously you have to have silver there.
If you have a warehouse receipt and you need to wear where warehouse receipt, but it's not like there's a scrounging for physical metal. When somebody takes delivery under comments, when somebody takes delivery of the, on the Colmex, they get a warehouse receipt. It says this silver already exists in a Colmex registered, recognized depository, and here's the warehouse receipt.
And you maybe put up 10 or 15% of the value on margin to buy that contract. And now it's being delivered to you so that you have to put up a hundred percent, which is why the Colmex has a mechanism as do other futures exchanges. If you take delivery, you can redeliver it the next day and not have to put up a hundred percent.
So there are McCann mechanisms there that are very common. You know, you can buy a book on commodities trading one Oh one and understand this stuff, but there are a lot of people in the silver market. Who've never read those books and who don't understand what the delivery process is. They don't understand the nature.
They don't understand the purpose for which commodities markets exists. So, so let's just sum up your what, when, when we're putting a bunch of money and two quote, unquote short squeeze, silver, what really is the net effect? Is there any substantial net effect on the silver market? You can have a short term effect pushing the price up, but probably the overall effect is that you'll lose your money.
Yeah. Okay. Well, we, we, yeah. All right. Well, I mean, we did see a lot of people putting in it's the sewer equivalent of thinking that you and a bunch of other poorly armed people can storm the Capitol and overthrow the government, you know, you're probably gonna get hurt. Well, yeah. Th th th w okay. So there are a couple of theories out there.
The financial institutions who are, I guess, on the, on, on the long side, Uh, they're, they're the ones that are going to get hurt from the short squeeze. But you're saying based on what you said, it sounds like you're saying that no, the deliveries are not going to hurt them in any way. Yeah. Yeah. It's not, they are not going to get hurt by the truck squeak.
They're actually getting help by the short squeeze because the financial intermediaries actually are short the futures, but they're long physical, the short positions that they have on the futures contract. Primarily are hedges of physical metal and that's physical metal that they've lent out to producers, smelters, refiners, fabricators, and others.
They get. Yeah, banking one Oh one is I'm not trying to make money. Uh, based on the capital appreciation of my deposit. I'm trying to make money by charging little fees for things, right. And banks make most of their money in precious metals by lending that metal out to people who need to use it, who don't want to put up a hundred percent to finance their working inventories.
So the price is $25 in mid January, and a bank is charging 3% interest. He's earning 3% of $25. If some people come in and drive the price to $30 and happened to do it at the end of the month, when a lot of these rates are locked in, the bank is getting 3% of $30 instead of $25. You have just given that bank a 20% boost in its revenue.
So the shirt's squeeze doesn't hurt the banks that are short, the features market, the chart squeak actually helps. What about the, uh, another theory I've heard is that the industry itself is trying to, uh, is trying to suppress the metals. Even if you look at, if you look at the industries that use silver, a lot, battery technology, Tesla, um, the beads are some of the companies that, that have an incentive.
For the silver price to be low. And, and they would benefit from, from the production side. Do first of all, is there, is there any validity to this theory? And I guess what the silver squeeze is trying to do is also to, uh, is to just show them that, that, that what they're doing is wrong. There's no validity to that.
That's, that's just. Silly. That's just plain silly, you know, uh, no, the industries that you silver don't like the fact that the price of silver is much higher than it used to be. Uh, but they're not trying to deal with the price in the futures market or any place else. And they're not trying to suppress the price.
They're trying to find ways to use less silver per unit of output. Yeah. Okay. All right. Well, I mean, these, these, these, these notions, these theories must come from somewhere, right? It's is there any, is there any research that you've done that would point to a suppression of the silver markets by industry?
Not at all. There's been a massive amount of research that we've done and that others have done. And what you find is that there's no evidence supporting any of these conspiracy theories. There's an enormous body of evidence disproving these conspiracy conspiracy theories. And there's a lot of evidence that says there's no such conspiracy and you see that over and over again.
I mean, this research has been done since the late 1980s. When, when one guy was fired by. Drexel Burnham fours, trying to squeeze the orange juice market and hung out to dry. And he went to the CFTC and said, be lenient with me and I'll show you how to actual burn them in squeezing the silver market. The CFTC investigated Drexel and found two off market trades and find them a few hundred thousand dollars for making off-market trades that they then crossed, which is what you did before you had ESPs.
Final final question on the squeeze. Yeah. Whichever ever since then, that has proven to the, uh, that these things don't exist. But when you show it to a true believer, they say I'm a true believer. And you know, for me to change my beliefs based on evidence or facts, you know, that's not what that's, what a thinker does.
Not a believer. I see a final question on the silver squeeze, the hunt brothers, some people were drawing parallels between what's happening today and what the hunt brothers did in the eighties. Can you, can you explain any similarities at all? If there are any, there are really no similarities. One of the things that is commonly believed about the Huntsville, which is actually patently untrue is that the Hunter tried to squeeze the silver market.
The hunks did not try to squeeze the silver market. I actually knew them, uh, at the time. And talk with them. Um, and as well as with the various people who worked with them and what the hunts did was they looked at the silver market in the seventies, actually starting around 1974, I believe. And they said, this is a market that is running on fumes.
There's a S there's at the time a, um, Structural deficit of newly refined silver coming into the market relative to the fabrication demand. Silver was used heavily in photography and jewelry and silverware back in the seventies, there's the silver markets running a structural deficit. And at some point the price is going to rise.
We want to buy silver and we want to ride that wave once they had their silver in place. Some of the brokers and others that were working with them said, do you mind if we tell other clients about this and you say, absolutely not. In fact, we're going to do that too. And they flew off to talk to their friends in Saudi Arabia, Paris, uh, Rio de Janeiro, and say, look, we've taken a large position, silver, because we think the silver price is going to rise at which point all of those people came in.
So the hunts didn't try to control the corner of the market. The hunts saw a way that would push silver prices higher and they worked. To help emphasize and accentuate that that way. Um, and, and they weren't trying to squeeze the market. They were, they, they just thought that the price of silver would rise and if they could help it rise, they, it would be good for them to, uh, and, and that was what they were doing, which has like nothing to do with these guys sitting in their basement, playing with wall street bets.
Yeah. Uh, okay. Were you, I mean, was there the wall street best community has denied any involvement? So this is what, this is where I'm confused because they initially we saw posts on Reddit, but then the community itself has denied involvement on shorting silver squeeze, uh, or initiating the silver squeeze rather.
So do you have any facts as to who actually was involved, which groups of people and which, which groups of investors were likely behind this while we saw in early February? First off the stuff. Doesn't matter to me. I look at the real silver market. Second thing is, I'm not an investigator of it. Third thing is if I want facts.
Yeah. There's this body of evidence that they posted online saying, Hey, let's squeeze the silver market. Yeah. So, uh, that's like, you know, Donald Trump saying Michael Colon, I hardly know the guy, you know, it's like just total denial of something else. It's like, well, the smartest thing we ever did was videotaping us, trashing the Capitol and then posted online, duh, you know, I mean, so they can argue all they want.
I don't care because they're really in consequential to what's really important in the silver market. And there's some major changes going on in the silver market. That had just being overlooked by the silver market. And, you know, frankly, we're sitting there saying why, why, why aren't people in the silver market aware of this and talking about it because it's pretty important, uh, structural changes going on there.
And, um, people are looking at this. It's a giant distraction. Yeah. Um, Jeff let's focus on the broader macro, uh, several landscape. Now, while you, uh, you'll be talking about this, give us an overview of some of the broader macro themes you'll be discussing at the webinar on Thursday. You don't have to go through all the details.
Maybe just a quick synopsis. I know it'll be a very extensive interview. We want people to go watch the actual webinar. So give us a quick synopsis here. The single most important thing that's happening in the silver market. Is that you had been in a period from 2012 to 2019 when investors were buying for aggressively less metal or physical?
No, on a net investment basis. Uh, and in 2018, 2019 investors got out of the 26, 27, 30, 35 million ounces of net investment demand on an annual basis. And at that level, You saw that reflected in the price. So the price was very weak. Last year, investors bought more well, roughly three times as much, they bought more than a hundred million ounces of silver.
And that is what is behind the sharp increase in silver prices from 15 to $17 in 2019 to 25, $27 with a couple of spikes up to 30, 31. Uh, in 2020, that's the single most important factor. And we'll focus on that. In addition to that, you have had banks and brokerage houses mostly, but William Branks pulling out of the golden silver market, which has reduced the liquidity in the silver market, both the depth and the breadth of liquidity, which has caused greater price, friction and volatility.
And the third thing is you saw, as I mentioned earlier, you've seen some of the banks because they were accumulating record amounts of gold and silver, uh, in 2018 and 2019. And even earlier in silver, it goes back to 2016. You had a lot of silver being built up in market-maker bullion banks. Uh, inventories on their books, uh, in that period of time.
And the bank senior management said, we want to reduce our exposure to precious metals trading, close, close out of some of this. And what you saw was that some of these banks took that gold and silver sold. It bought ETF shares, they're bullion on desks. So they transfer the ownership of those equity. So the SLV and GLD to the equities trading desk, and they allow them to liquidate that position.
And you saw that trend over the course of the year. So you saw, if you look at silver ETFs, you know, more than 330 million ounces of, of accretion of additions, uh, of inventories at one point and people say, Oh my God, investors have never bought 330 million ounces of silver. And you're right. They haven't, and they weren't last year either, because some portion of that, perhaps as much as two thirds of it actually was these banks disgorging their metals because their senior management says we really don't want to be in the precious metals trading operations anymore.
Okay, Jeff, uh, interesting talk, thank you so much for giving us your information. Good luck with the webinar on silver, on, uh, on Thursday. And I look forward to look forward to that. Thank you very much. Thank you. Thank you for watching Kitco news. Don't forget to subscribe. If you're watching this on YouTube. .