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I got into a tussle the other night with a Twitter friend. It was nothing against him, AT ALL – but the markets. I was venting about the COMEX smashes in silver I was seeing, again – but this time the price was recovering very quickly. My friend defended the COMEX futures, as it is his livelihood – but there are serious flaws in our markets.

I believe what gives our dollar strength is the commerce involved with it. Everyone needs it for financial transactions. We have our markets then – our COMEXs, our NYSEs, etc. There are other exchanges around the world, but not nearly as large. My main issue with our markets today is that they are, for a better word, saccharin.

When you take economics, you learn about the likes of Adam Smith and supply and demand charts.

The below shows an example of how you draw pretty charts in economics classes. This is how real markets are designed. Profits built into prices, or else you go out of business.

The above is a written response I had on an economics test at Villanova University around 2002. It took another 6 years for this to come to fruition – and a critical comment I had later on in this was “housing doesn’t go down”. It was a very odd comment for an economics professor to have at the time, but I think he was looking at the 100 yearr view. I was seeing then that the homes were inflating in prices, artificially, with lower interest rates to stimulate the economy after the dot com bubble and 9/11 happened.

My point with the above is that markets REQUIRE real buyers and real sellers using real money. When you artificially juke markets – it has consequences – and in economics you can see this as bubbles bursting or perhaps inventory shortages from price being set too low with ceilings, of sorts. Very few people on earth REALLY understand the macro issues going on.

Part of my “tin foil hat” speaks to the Fed raising rates so quickly to protect American industry from global shortages of commodities. Imagine waking up one day to see Apple can no longer produce ANY goods due to silver shortages? That’s a $2.4T market cap company that can’t produce any goods. What happens to our stock markets without silver? I’m using silver as the argument here, but the point is without an IMMEDIATE cease and desist in expansion, we faced a reality inside of a year of that Apple situation from happening. It wouldn’t be EXACTLY like that because Apple probably has long term contracts – but the idea is SOME large companies would have been the last pigs at the trough and if supplies of these commodities stopped due to shortages, depression would happen inside of weeks. I think Europe is facing this with the energy crisis, but I’m going to focus on the US here.

Today, what we have with the COMEX are paper contracts with high frequency trading spec buyers along with high frequency trading speculative sellers using a currency that is being borrowed into existence at an accelerated, accelerated rate to keep everything from falling apart.

I do NOT have an issue with the COMEX itself. MY problem is that FAKE CONTRACT trading at ridiculous levels is actually what sets the prices.

Take a look at the past few weeks as demand of paper contracts has risen, and then supply of paper contracts flood the market when over $24. You can see the concentrated time of this. This is not how people would sell millions of anything.

I believe the spirit of the COMEX makes a lot of sense.

1. There IS physical delivery – I don’t know about the grains much, but I know there are COMEX vaults with gold and silver that do exchange hands
2. I do understand the concept of hedging production, selling, or buying
3. I do understand someone who would speculate on a silver contract
4. I do understand this is a great place for some entities to get 1,000 oz bars
5. I understand how this type of mechanism can find efficiencies with lower production costs in a worldwide market which allows producers from all over the world to sell contracts

The main issue with these things are…

1. That the COMEX IS the price setting mechanism. I don’t know much about the “price fixing” mechanism twice a day, but the COMEX drives the bus with prices. What is being bought and sold are paper contracts that may or may not have legitimate selling or buying with it, or legitimate hedging. Rather, it appears at face value that with the volumes we see daily, that this is a mostly paper-trading game with the OCCASIONAL physical trading
2. The amount of high frequency trading today is obscene. You have massive entities, who then determine the price by how many contracts they can issue or buy and direct price targets. Hedge funds could be another, along with banks.
3. It is now understood that banks or entities that are playing these games know where the amount of stops are set, and with this, they can push paper contracts to a point to trigger stops – which then has a cascading effect down. Retail stands no chance in this game if they have stops set. Banks/HFs are there to take your money.
4. The game has been played so long now that when you try to get metals, you are going to the far reaches of the earth, in the worst jurisdictions, paying the lowest wages in the world, with slim margins, and tons of risk in your business model. This, I believe, is leading or has led to structural deficits in many metals. I am not clear on how the grains/food part of our markets are, but I know my cousin and her family had to sell their milk farm in Indiana that was in her husband’s family for generations due to milk prices consistently being pushed down below the costs of production.

I firmly believe what has given our dollar the most strength is the ability to exchange it for goods and services. However, a time is approaching when someone who buys a silver contract and wants to take that silver from the vault will be cashed out after repeated attempts to take delivery.

Eight days in a row of nothing leaving or entering registered. Weird.

I used to do a lot of reports like this 2 years ago, but Mike’s are nicer looking and provide a lot better info at a glance. This is what mine looked like 2 years ago. He has taken on this task admirably!! You could see my tracker with the daily delivery oz – and maybe 1 day here or there nothing moved. Eight days????? since that, there was one day above with the 10k ounces out, then the next day nothing either. Odd.

The problem is this…

You have a LOT of people who run these markets in the C suite who make billions a year off of this type of HFT games. The volatility makes them money. These people are not stackers who bought a $1,000 oz bar for $24 and will sell it after 10 years for $36 for a 50% profit. They are pushing these markets both way to fight other entities over fractions of a cent with high volumes, day in, and day out.

Yet somehow, lost in this, is how silver primary miners no longer exist. I have written this a bunch of times now, but in just 3 short years since I’ve been in this space, most silver primaries were at like 60-70% silver, and the rest was mostly gold, and some did base metals. Companies like PAAS now are like 26% silver and mostly base metals. My favorite mining company, FSM, I got in at 60% silver, 40% gold – and by the end of this year they will be 19% silver, 70% gold, and the rest is zinc and lead. My point is that ore grades have gone down, mines are running out of mine life, no new big silver mines are coming online, fuel prices and other costs are going up – “primary” silver miners that I know of, today, can probably be counted on 1-2 hands. Some of them are perhaps 50-55% silver. Some may be Chinese and have VERY low labor costs. Others are coming online and have not been hit with the beat stick on lack of profits for many quarters, yet.

So my hypothesis made others somewhat angry, but you cannot deny this.

If you understand that the West’s markets are “low” on metals stocks with LME and COMEX, it is absolutely comical to see someone selling massive amounts of contracts into these price points. In fact, it is either the most reckless financial transaction you can do, or your risk is mitigated with knowing you can push the price lower to buy back contracts later. This does not stop those who ACTUALLY need the physical to want to take it.

But that’s where my problem is. There is an inevitability play here. Rick Rule famously said about Uranium – which was 20% of baseload power, “if the price doesn’t go up, the lights will go out”. I want you to consider, “If the price of silver doesn’t go up, every assembly line in the world stops”. While we all know about silver in solar panels and EVs, many don’t realize how it is used in perhaps 1,000 products. It is the best conductor of electricity in the world, and with that, you cannot just substitute copper. You would need to re-engineer everything from the ground up due to the heat that copper would have with resistance. But we are also hearing that copper needs to double in production by 2035, and most of the large copper mines in the world are 100 year old and their ore grades are deteriorating.

Look – find a mining hotspot in the world. Chile for copper, Peru, Mexico, etc for silver. These metals are crucial, and the Western-driven markets are continuing to push price lower and lower. I feel we are at that point where ore grades have lowered, mine life has been lowered, waged have been lowered – and jurisdictional risk for mining investing is at an all time high. Who the hell WANTS to put their investment capital into Peru, Burkina Faso, Papua New Guinea. At this point, these are the only real places left we can get these metals this cheap. We hear about cobalt and slave labor.

What we saw with Ghana a few weeks ago I have been pounding the table on. I think it completely flies under the radar, and most just dismiss it. Ghana has required their gold miners who sell them 20% of their gold they mine in their currency cedi. I believe many other nations are going to follow suit – whether it is gold, silver, copper. All of these places in the world have western miners and capital come in, pay the lowest possible wages, and extract resources to sell on western markets for the cheapest prices possible. Some of these mining companies are wildly profitable, but a vast majority of them struggle to pay the bills and keep the lights on. It is a very capital intense industry with a litany of risks and accidents that await.

My belief is that we squeezed everything we could, and the game is over. Many just don’t understand that it is – for Western pricing of metals, that is. I think us pricing soy for the next 50 years won’t be much of an issue. I did these charts as well to show that things we produce a lot of, and sell a lot of physical supply of, we will be fine.

Where the problem comes is the nations which produce a lot of the metals I believe are going to start selling all of their stuff on the physical markets. I don’t know where, I use Shanghai as an example – but I know many more markets have been stood up over the last few years for gold.

If the COMEX and LME are not able to get adequate supplies, and these physical supplies are being sold at higher prices overnight (for me) on the Shanghai exchanges, it would stand to reason that in a given period of time, metals producers will have all of their metals there.

James Anderson shares a lot of great charts…

This shows potentially how a company can buy shares in SLV, then at a later time, they can just take the silver out.

This is another chart James does –

You can look at this several ways. One way to look at it is perhaps overnight, gold prices went up, and in the morning, first thing, mining companies are selling into the higher price and knocking it down.

However, another way to look at this is understanding the buying in the east is REAL, where the selling in the West at 8:30 is paper shorting the price lower. This could have a net effect of sellers of REAL PHYSICAL to wait to overnight markets to get better prices – perhaps as much as $.50 more per oz silver, and then in the morning, NYC sees the paper COMEX contracts they bought at 3PM the previous day up $.50 and they sell for a profit.

Let that sink in. IF all of these Asian markets are open overnight from us, and these prices overnight are cumulatively showing much higher prices with demand – AND we can physically see metals going there, one has to wonder why the COMEX is still involved with price, at all?

It is my contention that a BRICS+ of perhaps 50-80 nations will have selling power on metals. This is something the US doesn’t produce a lot of.

We are at a point where the G7+ is being told not to buy Russian oil. Russians then want to deny oil to these countries that want to punish them. This begins a de-globalization trend. Meaning, factions will begin to form. And the COMEX that relies on globally finding the lowest priced items will have to find the lowest priced items among FRIENDLY G7+ countries. Meaning, it’s possible Chile then only supplies BRICS+ exchanges with copper. Mexico, Peru, Argentina may only sell silver to Shanghai. If you look at the chart above, we use 8000 metric tons of silver and need to import 6500 of those tons. Where are we getting it if BRICS+ countries FAVOR selling their products to the BRICS+ exchanges, and only scraps that are left over come to us.

In that type of reality, our car industry dies overnight.

Where does Detroit and others get the silver needed in like 40 car parts?

We all now are being told to buy solar panels and batteries. I have them. I bought them prior to inflation because I saw this coming and probably saved 30%. But where do these solar panels come from? China. maybe China doesn’t stop selling us solar panels, but how can any American company EVER make solar panels without access to silver?

I think the next thing to really keep an eye on in 2023 is physical stocks. PSLV might also get the drain – as any large customer can purchase shares and take silver out. But we see this now in SLV and LME. COMEX inventories for registered are at the lowest I’ve seen in my 3 years.

Conclusion

I love my country. However, I see all of this happening in slow motion. I think the DESIGN of the comex is beautiful for a global low price discovery. However, when banks know your stops and can push price to where THEY want it to be, this is an illusion of a free market. We see this in silver BECAUSE of how tiny the market is compared to others, so it is possible the gross issue here is exacerbated in silver as opposed to wheat or lumber. I believe the markets like silver that are wiping out companies who produce it is leading to structural supply issues that – if the price doesn’t go up, assembly lines will stop.

That being said, it is possible to see suppliers at higher price points MAY be supplying foreign exchanges with physical silver in the overnight trades – these physical markets may be allowing them to capture higher prices to sell their metals. It is hard to deny you can physically see the drain on these Western-based exchanges, and it is clear to see that there is a BRICS+ and G7+ trade war coming on the horizon. This will introduce a de-globalized market place which, in a sense, would need COMEX prices to come up significantly with metals to compete for inventory.

With this, you can see bankers getting stupid rich off of the volatility of these markets while driving producers out of business and workers in these high risk jurisdictions have the lowest wages in the world to produce these goods.

It is my contention that there are fireworks coming. Whether it is next month or 5 years from now, no one can know. It is just hard to ignore that a few hundred people are making millions off of the Western-based metals exchanges while millions suffer the artificially set low prices. I believe this will change. Drastically.

Western exchanges, are days, months, or a few short years from losing all pricing power. Meaning, I would not be a spec short on these exchanges without legit hedging on the other side of your trade. You will wake up one day to empty warehouses and limit up days for weeks on end.

The COMEX will not “die”. I believe the metals will still have forward selling, legit hedging – but I believe the price volatility will STOP when supplies are being physically sold on Eastern markets and this is where all supply is bought and sold from. COMEX will become a price TAKER instead of a market MAKER and with that, those entities that want to try and sell 1,000 contracts in 3 minutes will not move price, one inch.

Lastly, I believe any chart voodoo any of do need to be tossed out because the price setter has changed. If you look at the price of silver for 100 years up until 1975 or so, nothing really happened. COMEX pricing then happened and price eventually hit $50. The era previously ended – and this era is about to end too.

Silver to $50? By when? 2023? Probably not. But a de-globalized worldwide economy in a trade war with all producers selling to Shanghai leads one to believe that price discovery will stop being the West. I believe this is great news for mining stocks. I also believe these higher prices will NOT lead to nationalization as some feel, but the Ghana model may be the way to go where a country stabilizes their local currency to the dollar AND can get goods they can sell for higher prices to Shanghai. Perhaps they then buy dollars and get wheat from the COMEX? Who knows….but anyone who can see the gauges right now needs to understand that the days are limited for banks to do these smashes.

Maybe I got it wrong. Maybe I don’t understand these macros as much as I think I do. Maybe you pro traders out there who make a living on the COMEX want to light me up. It’s ok. But none of that is getting you more inventory at these prices. Think about the other side of this trade. Those that do HFT and sell into this, one day, will go bankrupt. Think of the nickel blowup on the LME. Why would anyone who has legitimate buying or selling interests partake in that clown show? Then look at who remains. Shops fighting each other at fractions of a cent with quant trading into ghost markets with no metals. Clown car. They just don’t know it yet, or they do know it and are trying to wring every last cent out of it. These people get 8 figure bonuses. If it goes away tomorrow, they don’t care. But this has such a downstream effect on labor costs and higher prices to come in USD.

The next wave of inflation coming this decade is through the untangling of global supply chains where costs of these things we pushed to the hell holes of 3rd world countries will have to be done more with friendly nations and domestically. This will drive prices FAR higher – think about trying to get silver from Nevada or with Hecla – they produce what, 20m oz? That’s about 600 tons of production domestically and we use 8,000. Think of the labor costs with unions. Delays with permitting here as everyone who is green is in office and will delay more mines for decades. This will starve Detroit from silver and there goes our car industry. De-globalization has a lot of impacts most people have zero clue about.

Anyone want to chat about this? I feel like nerding out on a channel who has a decent following with this sometime next week when I take a day off.