Every competitive game of chess requires great patience. First, you develop your pieces. You plan an assault. You execute tactics. Eventually, you see an endgame where you have the distinct advantage, and you know you have won. You just have to stick with your plan and let the game play out….
The EXACT same thing I’m finding in investing. Whether it’s real estate or my mining stocks – I’m really starting to take to this investment thing as I’m seeing a lot of parallels. The “checkmate” is your desired goal. Maybe you apply this to real estate as I want “40% free cash flow on a property” or with short term call options of a 40% profit before you cash in. All of these require setups to happen. Side note, when all of this COVID stuff goes away, I’d love to try and make some of these mining investment conferences. Maybe understand what the hell warrants are with private placements and getting in on that game. Yeah – steep learning curve for someone like me coming in to this.
When I wrote the piece, I figured it would be popular, but had no idea of the reach of it – all the way to Sprott Money, itself. I wrote a follow up piece which was a little shorter and made the “phases” more clear as to how this was going.
As a follow up, I want to talk about a few things I called along the way and how this is now playing out. Some recent developments happened, and I just wanted to document some of this stuff along the way.
- Second half of March – in my video and writings, I discussed the “second half of March” as when the fireworks would happen. Yesterday was the first day of the second half of March and we’re seeing COMEX delivery OI taking on water, Perth Mint apparently out, and industrial shortages happening with semi-conductors. While price has not moved – the fireworks are in the mechanics of the system breaking down. They can paint over this for so long, but eventually a Krakatoa happens when the wheels go off of this thing. It will go slowly…until it doesn’t. I see yesterday’s development as significant for a lot of reasons.
- PSLV – When I wrote the piece, all of us were seeing $8-10 premiums, which then made sense to park money in an ETF to play the PRICE of silver. Everyone in this space should have had their physical silver long before the late January event. But I started crunching the numbers with their shelf offering and figured for the $1.2 billion or so they had, they could have bought 40-50m oz by the end of March. I think they are close to 30m now. Point is – they are active players in the market and taking real 1,000 oz bars off of the market. Recently, they just filed another $3b shelf offering. While this sounds like a ton, let’s just say it’s 100m oz. As more and more people may get disenfranchised with SLV, they may sell SLV and buy PSLV. I still think in the next 2 weeks if price ticks up a bit and a billboard gets out there, we might get another 5-10m in PSLV, IF they can find it. Rick Rule said it was getting very difficult to source 1,000 oz bars. And that was the end of my “phase 2” in my plan. When ETFs started running into difficulty getting product – so would industrials.
- COMEX – I was wrong in calling for $35 silver by end of February. What mostly happened that none of us saw coming was twofold – they knocked down WAY more contracts than any of us thought possible. What I have been writing about all month is the deliveries. In my articles and video, I discussed how deliveries “fell off of a cliff” and that at some point during the month they would need to source a lot of this in the open market. I figured March 5th you are looking at 50-70m oz. This did NOT happen, but we are halfway through the month and now with 6m left to deliver, OI is increasing daily instead of decreasing.
- “Shadow Contracts” – I did get confirmation through the best sources in this industry that there’s no real such thing as “shadow contracts”, but these are “same month deliveries”. I like the name shadow contracts because there’s no column for this – it just adds to open interest without any explanation. That being said, it sort of defeats a “futures” contract if you can then buy in the same month. It is not “same day day delivery”, it is by the end of the month. As my knowledge of these subjects improves, I want to update all of you so we all have the best information. That being said, there are now 682 contracts added within the month of March – or roughly 3.4m oz. With half a month to go. I’ve been sending out the daily numbers on Twitter. This evidence backs my claims that it seems a vast majority of these deliveries are not coming from COMEX registered. The metal is THERE, but not coming out. It is possible one of two scenarios are now in place. See “contracts” in appendix A below.
- Banks that have the metal, don’t want to hand it over. They need it to consistently short on the futures to make money or protect bond prices.
- Out of the 750m oz short on futures, I have mentioned Ted Butler says the big 8 banks are 400m short. No one is claiming they are “naked short”. But what about the other 350m? It’s possible those 6m oz that remain ARE naked short and not part of the big 8 banks.
- Goldman SLV holdings – one thing I didn’t see coming was Goldman ACTUALLY handing over metal, but I think this is due to the risk departments at Goldman. Early February, with all of this chaos, Ronan Manly reported that all of the London-based ETFS are now at about 85% capacity of the LBMA vaults, and no one knows how much of that remained may have been allocated and not even available. Immediately, Ronan then found SLV and SIVR changed their prospectus to tell those invested…”all of the silver may not be there”. I believe as part of a bank run – Goldman was shorting on the COMEX based off of their long physical holdings in SLV. So, if you cannot guarantee your physical is there, you should NOT be shorting against it. Therefore, it seemed (in my opinion) a risk or compliance officer forced liquidation of the SLV holdings to then hand over 15m oz on the COMEX. I believe Bix Weir reported on Goldman handing this over – I’m speculating as to the “why”.
- Perth Mint – There are reports coming out now that the Perth Mint is out of not only all retail but also unallocated. I don’t know enough about this honestly, but some are claiming this is a “default” because those who have unallocated with them are supposed to get it within 10 days. They have been told, supposedly, it may be 6-12 months before they can get it. Other mentioned they think the Perth Mint is now supporting COMEX deliveries, which I’m not sure how this would be tied together. One thing to note here was Sprott mentioned that if there was a default, it would not be with the COMEX, but perhaps the Perth Mint. Check Appendix B below.
- YCC and FOMC – as part of my writings, I consistently stated that the 10yr could slow the price move up, but unless they wanted to default and take the stock market down, Yield Curve Control would have to take place. The FOMC meeting is today. During this time, they usually take down the metals, only for it to raise the next day. It is inevitable to have Yield Curve Control – but maybe not imminent.
- SA and why they are short – in my articles, I also wrote about how Austrolib on SA said – the whole reason for silver to be shorted was to protect the bond prices. Obviously, they play the cliff drop games and make money off of this, but the UNDERLYING reason is to protect the bond prices. IF yield curve control is in place, you need to ask yourself – is there a reason for big banks then to short silver (or gold)? Could this be where they go long (physical) and get out of the shorts (on COMEX)? We recently saw banks draw down their short interest in gold. Perhaps they are anticipating a Yield Curve Control coming and setting up to go long? Seriously – IF this austrolib guy is correct, and IF they short to protect bond prices from silver/gold running hot – IF Yield Curve Control is in place and the FED is backstopping the falling bond prices, this would then mean there’s no reason for the banks to be short metals. I don’t know if Austrolib is correct. IF he is correct, we would then start to see open interest by banks start to get drawn down. My guess is also banks at the Goldman/JPM level get tipped off on policy before it happens – which again could explain why there was a drop in gold shorts by the banks.
- Bank run – If you connect the dots, a bank run on metals has been going on for some time, but now I believe the evidence is overwhelming. I felt at the beginning of my ventures in to physical silver, that there was a limited window where people could buy metals. I bought some at an average of $18 with premium. Over the past year, we saw the COMEX become a delivery mechanism because due to COVID and the refineries being backed up, people could not get a lot of product. We saw from SRSRocco report that investment silver (physical and ETFs) now overtook industrial demand for the first time. ETFs in London are having problems getting metals. PSLV is having problems sourcing metals. Perth Mint now supposedly out. Retail everywhere sold out or high premiums and limited inventory. WallStreetSilver is about to start a billboard campaign which I believe will put more pressure on retail and PSLV. We have had reports with 1,000 oz bars, at times, not being able to be sourced for 4 weeks and premiums at $.80-$1.40. to be fair, David Morgan said recently delays are smaller and premiums can be found at $.30. I believe that it is a matter of days/weeks until someone in the financial reporting sector is allowed to run with this story. James Anderson wrote yesterday that he has higher placed up media contacts, but editors may not let them run with it because it might cause panic buying. Well…I’m not sure anyone noticed, but panic buying has been on-going for 6 weeks, but the problem is Joe Sixpack has not been made aware of it. By the time he does comprehend this, it will be too late. And that is unfortunate for our media to not be able to convey this to Joe. It would be interesting for this news to break on the same day as the FOMC and as they pound prices down with paper. You would literally be writing about a bank run AS silver futures go down. Priceless. But, welcome to 2021.
- Phase 3 – I believe with all of this above, that those in the know in industry have been making their move. You obviously are seeing large repositories now being raided. I also heard Chris Markus and others saying the SLV is down 90m oz from withdraws. Now, some of this could be selling of the SLV, and those people buying PSLV, but it COULD be that those with accounts with authorized participants are taking their metal off of the exchange. If you are Toshiba and had a UBS account for 1 million oz of silver, and SLV comes out and says “all of the silver might not be there when you go to redeem” and you put it into the context of chip shortages with semi-conductors – it stands to reason that some of the vaulted silver could be raided. It’s also possible that Toshiba could have asked UBS to short it on the COMEX to hedge the value. While this metal is being pulled off and perhaps taken physical possession of, it also stands to reason it could be less shorting done in the future on behalf of the clients for “hedging” purposes. If 90m has “left the building”, that could also take the open interest from 750m down to 660m in time…IF this was all metal being pulled off for industrial usage.
- Negative Real Rates – why I got into all of this was that when I saw the Repo market break on Sept 16th, 2019, I knew it was all over. They kicked the can down the road for an impressive 40 years. But, like in the Big Short – you saw people seeing the collapse of an industry and finding ways to defensively play it. I wanted to do the same. What I eventually realized was…
- They cannot raise rates like they did in 1980 to stop inflation, without taking the whole system down
- Inflation would eventually run rampant due to all of the money printing – and going directly to the people
- This creates an increasingly negative real rate. It can only be stopped by rhetoric, and eventually, that rhetoric will be ignored when facts cannot be disputed. Currently, they acknowledge inflation, but call it “transitory”. In my other pieces, I have shown how inflation right now is rampant. At the same time, the fed is SCREAMING they cannot find 2% inflation.
- When you have an increasingly negative real rate and eventually, a possibly hyper inflation – you need lots of metals. Miners will amplify your play by a LOT. As it turns out, Dr. Michael Burry of “The Big Short” fame came out a few weeks ago on Twitter and warned of hyper-inflation. So…some of us beat him to the punch on this, but it seems we have a powerful ally who sees what we see.
As I see it – with this update, the pieces in motion I described in early February are in play. I also mentioned that it was game over, they just didn’t know it yet. They would try and “run out the clock”. What that looks like is the 10yr which delayed the price hike I was anticipating. But as I also wrote, the 10yr would need to be addressed by YCC which then would be pouring gasoline on a bonfire for metals. So yeah, there was a delay, but it just will make the move up that much more violent, when it happens.
And as a death knell to all of this, as price rises, by my estimation, Sprott’s PSLV is free to add up to 110m oz at a cost of $30 each. I feel when this Perth Mint thing IS reported on, we will enter the last stages of Phase 3 – and THIS will take us to stage 4 where the 400m oz short starts to get knocked down/covered. Of most concern I’m looking at right now is what about that 350m that is NOT the big 8? Are any of those entities naked short? If you look at Appendix A below, and you SEE 127m oz in the COMEX, why would you not just hand it over? Unless….you are not of the big 8 and possibly a speculator or hedge fund and got caught naked short 6m oz? Of the 350m – how much of that is naked short? I discussed the 400m start to cover, but what of the 350m? THAT is a thread worth tugging on for all of you more connect with that industry than I.
Appendix A: Contracts
Appendix B: Sprott and Perth