I always appreciate getting email from readers, even when they don’t see things my way (sometimes because I am not bullish enough on silver, if you can believe that one). Sometimes, I can tell that the person writing me is truly speculating with some various form of leveraged silver contract or ETF. This does not necessarily have to be a COMEX contract: I now know there is more than one leveraged ETF that trades in silver, plus I realize some people play options, another form of leverage.
I have no problem with people throwing their money away, as long as they understand that is what they are doing when they gamble with a metal that has a history of reversing up to 8% IN A DAY, and up to 20% (or more) in a couple of weeks. (We are still not done with this correction, and the 200 day moving average on silver is somewhere down in the 20s---look out below silver speculators!) In other words, if you only put 10% on a contract or an ETF or whatever, and the price of silver moves 20% I hope you can do the math and see you have lost everything. Of course, you should get a margin call from your broker before someone loses more than they have.
I have noticed some whining about the CME raising margin requirements for its traders. You will have to forgive me, but when you dance with the devil, you get burnt (or however the saying goes). Yes, some of you out there will point out that the short sellers own the exchange, and all of the standard complaints I also have raised about the COMEX. But I raise those concerns precisely because I want to encourage people not to play the casino COMEX game in the first place. Walk away. Buy real silver. You might be surprised how far the price can rise.
Back of the Envelope Calculations: Paper versus Physical
Why do I say this? Simple. All of the above ground silver in coin and bullion form is maybe worth 40-45 billion dollars. On the planet. That’s it. Maybe the CPM Group is wrong, but I doubt they are that wrong about the amounts of above ground silver. Silver scraping? Not much more than 8-10 billion a year, and this number has not changed much as the price of silver launched from 4 to 20 dollars (so much for the scrapping argument).
On the other hand, how much equity do traders plunk down to play the COMEX, or the triple leveraged silver ETF? Well it is hard to know for certain. But we know there are hundreds of thousands of long COMEX contracts that, depending on your broker, now require at least 16,000 dollars to purchase (mind you I believe these contracts control over 150,000 dollars in silver more or less). Some brokers are requiring up to 30,000 dollars, and several traders will put more money down to try to cushion themselves against the blowout that I described above. So in COMEX contracts alone, if we assume at least 250,000 different long contracts taken out or traded in a given month (and some would say this is low), there is at least 4 billion dollars tied up on the long side of paper silver. And this is the absolute minimum dollar figure. If we assume an average equity position of 20%, the number rises to 8 billion dollars, to 40%, 16 billion, etc.
And this is just the COMEX. How much volume did the AGQ do yesterday (the triple leveraged silver ETF)? Roughly 10 million shares and it traded around 200 dollars. Another couple of billion. I am not as familiar with options, or with other types of gambling contracts or leveraged ETFs, but I imagine those too are in the billions of dollars, at least. And these numbers do not represent annualized dollar figures. It is really impossible to know how much money gets thrown at the long side of the silver market, but it is hard to believe that it is not many, many times the amount of physical silver on the planet for investment. An amount of investable silver that will have a very hard time, in the longer run, growing at anything more than 5-10% a year. And some would say that is generous.
So even if traders only put 10 or 20% down on their various long silver trades, we are still talking about dollar amounts of silver “interest” that could buy up most or all of the silver coin and bullion IN THE WORLD.
But you have to actually want to buy it and store it, or at least do something close to it through goldmoney, bullionvault, or a holding company like the Central Fund of Canada. Otherwise you can still see big bullpacks at the COMEX casino. In the longer term, you might thank me, because a credible case can be made that you will make plenty of fiat money on silver simply by buying and holding it (see my earlier articles). On the other hand, if you gamble on leveraged paper you may very well get shaken out and taken to the proverbial cleaners. You may then have the unfortunate position of watching other people clean up down the road when the market recovers and shoots higher.
32 Dollars an ounce, 20 dollars an ounce, 15 dollars an ounce… count me in. However, at times like this I am reminded why I bought my silver (and gold) in the first place. I purchased them first and foremost as insurance against a corrupt banking system that I think the COMEX is merely a small part of. I also bought my silver not because I wanted to game the system, or make a bunch of money gambling.
I bought precious metals out of disgust with the treatment of savers, with the way that our financial and political “leaders” behave. I did not want my hard earned savings any place else, as I did not feel there was any place else left to go. And I am perfectly fine staying put where I am.
But the market moves of the last few days and weeks in silver are a reminder that speculators- both long and short- are still very much in charge of the silver price. Unfortunately (and it pains me to say this) recent events are also a reminder that most people still think investing in physical gold and silver is a joke. These monetary metals- like it or not- are still treated as gambling tickets or chips at a Vegas craps table. Has nothing changed since 2007 or 2008? Is it really just business as usual? Should we really all go back to buying amazon, or Netflix, or Junk debt, or residential real estate? Only time will tell.
And yet the real problems are still out there. We are only so many flash crashes, quantitative easings, currency accidents, or sovereign debt downgrades away from a large segment of the populace realizing the need to get out of Dodge. As a student of history I am prepared, whether or not I make a fortune in the process.
Are you?
