Be Patient, Silver Investors... It's Only a Matter of Time / Commodities / Gold and Silver 2021
A wild week of trading across asset markets hasleft investors wondering what represents real value – and whether it evenmatters anymore.
Stratospheric GameStop shares came crashing back toearth after their gravity-defying run up. The stock had clearly been pumped to ridiculously overvalued levelsbased on all conventional metrics. But that didn’t deter buyers who believedthey could push it to $1,000 per share before cashing out.
After dropping over 85% its nominal price peak,perhaps the GameStop craze has ended just as abruptly as it began.
Meanwhile, some online speculators have jumpedaboard other bizarre market frenzies. For example, the crypto token Dogecoin –which launched a few years ago as a joke – spiked this week to a marketcapitalization of over $6 billion.
A single tweet by Tesla CEO Elon Musk sent Dogecoin soaring by over 50% on Thursday. Musk, whois now the world’s richest man, stated “Dogecoin is the people’s crypto.”
It’s not clear whether he was serious or joking.But plenty of people took him seriously enough to put their hard-earned moneyinto Dogecoin.
Regardless of whether Elon Musk intended to moveDogecoin prices, either for his own amusement or for the benefit of holders,the incident proves that anything that can be traded can be pumped – and thendumped.
That’s the kind of market environment we’re in, forbetter or worse. Asset prices are being manipulated wildly on social mediasites and internet discussion forums.
Of course, as those of us in the precious metalscommunity know all too well, certain large institutions are well practiced inmanipulating goldand silver markets. Big banks including JP Morgan Chase andDeutschebank have paid millions of dollars in fines in recent years over pricerigging schemes.
Other types of interventions aimed at suppressingprecious metals prices are carried out openly and without any legalconsequence.
For example, after Monday’s big pop in silverprices, the COMEX futures exchange announced it would raise margins on silvertrading by 18% and then JP Morgan followed by downgrading the silver sector ina thinly veiled effort to reverse the bullish sentiment.
Those moves had the predictable effect of causinglong traders to pare back their positions, allowing short sellers to pounce. Asprices began to fall precipitously, some sold in a panic.
Silver prices plunged from a high of over $30 anounce intraday Monday to as low as $26 during Thursday’s trading.
Although the price action of the past few daysleaves many precious metals investors disappointed, silver and other metalswill have opportunities to shine in the future.
The past week’s bullion buying surge cleared outdealer inventories. If physical bullion buying continues to remain strong inthe weeks ahead, then it’s only a matter of time until supply and demandfundamentals drive spot prices higher.
In an interview with FoxBusiness earlier this week,Zacatecas Silver CEO Bryan Slusarchuk talked about the potential pressures thephysical silver market could impose on paper prices.
BryanSlusarchuk: Thepaper silver market is hundreds of times the size of the actual market forphysical silver. And what you continue to see are these open contracts getkicked further and further down the road with most participants in the silvermarket, having no real ability nor inclination to ever deliver physical. Now,physical is in short supply. If anybody tried to buy physical silver this pastweekend, they'll know that. If there's no ability on people that have enteredinto these contracts to ever deliver the physical silver they're contractuallyobligated to deliver, where does that lead to us? And that leads us, I think,to the potential for the mother of all short squeezes.
Unlike the recent crowd-sourced short squeezes oncertain stocks that have poor fundamentals, a silver squeeze based on actualphysical demand and real supply scarcity could last a lot longer than a week.It could play out for months or even years as public interest in silver and gold grows while miners struggle to ramp up production.
Physical precious metals aren’t for everyone. Forsome, the fact that their value is grounded in reality rather than beingcompletely arbitrary is a disadvantage.
In the long run, though, chasing after absurdlypriced assets tends to produce absurdly bad outcomes. It may be for the better that precious metalshaven’t been rendered a joke by internet stock pumpers.
It’s certainly fortunate for those looking toaccumulate more ounces that they can currently do so at reasonable prices, fornow.
By Mike Gleason
Mike Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.
© 2021 Mike Gleason - All Rights Reserved
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