The Silver Squeeze – One Year Later

One year ago there were some dramatic and exciting events in the silver markets.

It was a silver squeeze, which many of you may remember well. Let’s revisit what happened and then we’ll examine what’s happened since.

In the first week of January 2021, silver peaked at around $27.50, then quickly sold off to about $24.50 on US dollar strength. For the next three weeks, it hovered around the $25 – $26 level. Then, on January 28th, silver spiked to $26.50, then rose further. Here’s what I wrote about these events in the 2021 February issue:

It was a call-to-action by the now infamous WallStreetBets (WSB) Reddit community, which had essentially told its followers to buy GameStop shares and call options, and other shares in order to squeeze out the big short positions held by hedge funds.

Then In the last couple of days of January, a WSB Reddit subpost essentially told its readers/followers/members to buy the SLV silver ETF to effect a squeeze on paper silver shorts.

Reddit’s Wall Street Bets (WSB) has a new subreddit titled: ‘The biggest short squeeze in the world $SLV Silver $25 to 1000$.’ Here’s the post:

By all accounts, followers bought SLV, and the silver price blasted higher, along with the ETF, and all the positions in the Silver Stock Porftolio. Every single holding was up, and overall the Portfolio gained 8.30% just that day. In the first hour of trading the next day, the Portfolio was up another 9%, but then cooled off, though still ending the day about 3% higher. And on Monday,
Feb. 1, the portfolio was up 12%. Share volumes were up 6-7 times, and SLV saw 9 times normal volume.

All of this buying of the SLV silver ETF forced its managers to add 37 million shares to the trust in one day, buying an estimated 1,150 metric tonnes. Essentially, these message boards were introducing average people and investors to the particularities of the silver industry for the first time. Investment banks have been “net short” silver for years if not decades, happy to see low
silver prices as they mask true inflation statistics. So WSB followers are now trying to force those shorters into the market to buy physical silver.
I also put out a big, red caution note:

**********CAUTION: This latest action in silver is incredibly wild, and I think maybe unsustainable. Although I believe most of the silver sector has been undervalued for a long time, in my view, silver and silver equities could pull back considerably in the near term, and approach more realistic gains from the pre-Reddit/WallStreetBets call-to-action. In my view it makes most sense to buy into silver stocks gradually, in increments over the next few weeks to lessen risk.**********

There’s more to my analysis, but you can go back to that issue if you want to review all of it. What I want to do is look more closely at what has happened since then. The price of silver has drifted sideways to downwards as it continues to digest its huge gains from 2020.

What’s very interesting is what’s happened to physical silver prices. I’ve recently checked prices on one ounce silver coins. Premiums on Canadian Maple Leafs currently run about 22% above spot, while premiums on American Silver Eagles run from about 34% – 38%. If you consider that in normal times premiums tend to be around 12% – 15%, then currently they are about 2 – 2.5 times normal.

Premiums were high since early 2020, before the pandemic hit in earnest. After that they went crazy, rising to 75% over spot in some cases. So, despite still being very high, they have backed off somewhat. I still consider this too high, and would only buy a little at current premiums. Remember, one way to gain exposure to silver is to buy a silver ETF. My favorite remains the Sprott Silver Physical Silver Trust (TSX:PSLV; NYSE:PSLV). Again, it’s not a replacement for owning physical silver, but it gives you direct exposure with a small discount or premium to the silver price. I think it’s the best of all physically backed silver ETFs. To this day, silver ETFs globally continue to hold near record-high levels of silver, despite the metal’s ongoing price consolidation. That’s why I call silver “Sticky Money.”

In my view, the 2021 silver squeeze introduced silver to a whole new group of investors and, importantly, a whole new younger generation. And judging by premiums on physical silver along with record ETF holdings, they remain interested.

The way I see it, that’s going to be a great support for silver as we look ahead, and they will continue to help drive demand along with silver prices to record new levels.