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The Silver Market Fast Approaches Breaking Point

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In the opening weeks of 2021, the global silver market has captured the imagination of millions of people around the world buzzing alive with dramatic activity.

On the heels of the dramatic short squeeze of American entertainment games retailer Game Stop which saw the share price explode from $US 17.69 per share on 8 January 2021 to $US 483 per share on 28 January 2021, focus shifted towards the silver market as retail investors published several posts on the Wall Streets Bets (WSB) reddit group highlighting the opportunity for a dramatic short squeeze in the silver market.

Such were the dramatic flair of such posts, that members of WSB suggested that collective action that targeted the silver market could drive the price of silver up from $US 25 per ounce all the way to $US 1,000 per ounce representing a potential astronomical return of 3,900 per cent.

Amazingly, the attention which WSB was able to generate has resulted in visible signs of significant and unprecedented stress growing across the physical silver market. This stress will continue to mount in pressure resulting from not only increased public attention but also by the:

  • unprecedented global economic stimulus (both fiscal and monetary) in response to the COVID-19 pandemic;
  • manifestation of stagflation in 2020; and
  • accelerated stagflation and economic anxiety generated by the Biden Administration.

This stress is now looming as a material factor to the COMEX silver futures market[1] which has scheduled contractual delivery dates in March, May, July, September and December 2021.

This stress may become acute as early as March 2021 given that, as of 21 February 2021, the COMEX futures market is on track to be the largest delivery month of physical silver in the history of the silver futures market.

Such acute stress, if uncontrollable, may result in the breaking of the paper silver derivatives market manifesting an extreme short squeeze and price action as advocated by WSB.

The Physical Silver Market

To understand the dynamics of how a silver squeeze may occur, an understanding of the global physical silver market is required. In particular, an understanding is required as to the inflow sources of physical silver to the market and how these physical sources are consumed and accounted for.

Diagram 1 presents a high-level illustrative summary of how the current physical silver market operates. The diagram makes a clear demarcation between the inflow of physical silver into the global silver market and how this silver is consumed (i.e. outflow).

The inflow of physical silver into the global market is drawn from two main sources, they being:

  • silver mining companies (SMCs); and
  • the recycling and reuse of redundant silver resulting from discarded products containing silver, or silver wastage resulting from manufacturing processes.

Alternatively, the outflow of physical silver from the global market occurs in multiple ways. These ways include:

  • the COMEX futures market (located in New York, USA) in which raw silver is refined into 1,000 ounce ‘good delivery’ bars and is sold at a price which is hedged by SMCs providing certainty regarding forward prices in which mining output is sold;
  • that consumed by secondary and tertiary industry sectors (i.e., manufacturing and retail sectors), which includes electronics, electronic cars, solar panels, fabrication, silverware, etc;
  • wholesale refiners that produce wholesale investment standard silver bars (typically 1,000 ounce ‘good delivery’ bars) which are supplied to the wholesale market independent of the COMEX futures market;
  • that acquired by large sophisticated investors from the wholesale market which includes sovereign governments (e.g., sovereign wealth funds), central banks, institutional investors, exchange traded funds (ETFs), large family offices, etc. The largest depository of wholesale investment standard silver bars is in London and primarily comprising of London Bullion Market Association (LBMA) approved vaults; and
  • retail market refiners, which produce retail investment standard silver bars and rounds that are supplied to the retail market (i.e., products which are typically smaller than 1,000 ounce ‘good delivery’ bars).

Diagram 1: Global Physical Silver Market


In addition to the diagram above, it is important to note the following:

Physical Silver Inflow

  • most raw silver which is mined by SMCs comes as a by-product from mining other metals such as copper, lead and zinc. However, some SMCs also do mine pure raw silver.
  • according to the Silver Institute[2], recycling accounted for 16.6% of total silver supply in 2019 (pre-COVID-19) and 17.3% in 2020 given the fall in mining output supply during the COVID‑19 pandemic.

Physical Silver Outflow

  • physical delivery of 1,000 ounce ‘good delivery’ bars that result from the settlement of COMEX contracts may be transferred to London for resolution via Exchange for Physical (EFPs) contracts.
  • according to the Silver Institute[3], net investment demand in 2019 was 18.8% of total demand (pre-COVID-19) and 22.4% in 2020 given both the fall in industrial demand during the COVID-19 pandemic as well as increased investment demand resulting from the deployment of unlimited monetary stimulus by central banks.
  • Silver ETFs are independent legal trusts (i.e. independent legal entities) which hold physical silver on behalf of unit holders (i.e. investors) according to the terms of the legal trust’s prospectus. Physical silver inflows and outflows in and out of the ETF’s approved vaults are managed by the trust’s appointed custodian.
  • An inflow of financial capital into silver ETFs creates demand for physical silver and reduces the available stock of investment grade physical silver in the wholesale market. An outflow of financial capital from ETFs reduces the demand for physical silver and increases the available stock of investment grade physical silver in the wholesale market.

Silver Market Manipulation

Having described the core features of the global physical silver market, it is critical to consider how this market functions in relation to the ‘paper silver market’ and the associated international spot price.

Allegations of silver market manipulation have been well documented over the past 20 years by various international market analysts and which have been documented in the article “The undeniable manipulation of the silver market”[4].

Moreover, market manipulation, as outlined in the article “COVID-19 exposes Gold and Silver Price Manipulation”,[5] was further exposed during the start of the COVID-19 pandemic with the collapse in the spot silver price while retail investment demand spiked dramatically.

The core facets of the silver price manipulation scheme include:

  • the placement of significant numbers of unbacked sell orders (or shorts) in the silver futures market, meaning that the silver paper sell orders are without the requisite physical silver bullion to deliver on the contract (otherwise known as ‘naked shorts’);
  • the placement and withdrawal of fake trades in the gold and silver futures market (this practice is known as spoofing)[6];
  • the rigging of rules at the commodity exchanges such as the COMEX and LBMA which allow for futures contracts to be settled in cash rather than requiring the delivery of the requisite physical silver;
  • the rehypothecation of physical silver bullion which means that the same ounce of silver is used as collateral in multiple loan and lease agreements including with ETFs such as SLV; and
  • the use of dark pools of money, such as the US Government Treasury Department’s Exchange Stabilisation Fund, which is liquid enough to fund the manipulation and suppression of the prices of critical commodity markets such as gold and silver.

Given these elements, it remains unclear as to the precise “paper derivative to physical silver” relationship, given the lack of transparency regarding the available above-ground silver stockpile and the claims against this stockpile.

Silver analyst David Morgan[7] has suggested there could be up to 1000 claims on each ounce of physical silver across the global market.

Such an extreme disparity manifests itself, as explained in the article ‘George Soros and the Silver Moon Shot’[8], via an economic market structure where a price ceiling exists below the equilibrium price that would be determined via physical silver demand and supply fundamentals.

Such a situation allows for the realisation of significant asymmetric financial returns in a similar fashion to how investor George Soros was able to break the Bank of England in 1992 by betting against an overvalued British pound.

Thus, given the paper derivative to physical silver relationship and the structure of the market, any stress applied to the physical silver market has the potential to unravel the paper market in an extreme short squeeze resulting in a dramatic parabolic increase in the silver price.

Five Specific Points of Stress

Having described the core features of the global physical silver market, we now point to 5 critical stress points which have emerged in the past few week since the WSB group focused their attention on silver.

These stress points are marked in Diagram 1 (see above) and are also outlined below in Table 1.

Table 1: Description of Stress Points in the Physical Silver Market

Stress Point Market Category Description
1 Retail Market An online campaign by WSB through the reddit chat group as well as social media platforms such as Twitter led to a frenzy of retail purchasing of investment grade silver bullion in the North American market resulting in dramatic premiums on retail products (up to $US 10 - $US 13 per ounce) with long delivery delays.

Through the medium of social media, this frenzy in the retail market also manifested itself to a lesser degree in other markets such as Europe, Asia and Australia.

As inventory of physical silver retail products have been depleted, this has added pressure on the wholesale market as retail refiners seek to either acquire:

- 1,000-ounce good delivery bars;

- mining output (typically reserved for the wholesale market);

to create additional retail products.

2 Wholesale Market As reported by Chris Marcus on the ‘Arcadia Economics’ YouTube Channel on 10 February 2021[9], the frenzy trigged by WSB both in the retail market as well as among silver ETFs (see below) resulted in:
  • -reduced availability of 1,000 ounce ‘good delivery’ bars in the North American wholesale market; and
  • -record premiums charged on 1,000-ounce ‘good delivery’ wholesale bars.

As noted by the Chief Executive Officer of US based precious metals dealership Miles Franklin in an interview on 20 February 2021[10], a portion of wholesale 1,000 ounce ‘good delivery’ bars were being withheld in anticipation of record delivery requirements for the silver COMEX March 2021 contract (see below for further explanation).

Stress Point Market Category Description
3 Exchange Traded Funds (ETFs) Surge in Silver ETF Demand

The surge in demand for physical silver driven by WSB and social media chatter of a silver squeeze resulted in a large and unprecedented surge of monetary inflows into ETFs, thus creating an unprecedented surge in ETF demand for physical silver.

Of specific mention by WSB was the world’s largest physical silver ETF iShares silver trust (known as SLV).

Over the course of 29 January, 1 February and 2 February 2021, financial capital inflows into SLV (solely for these 3 days alone) required 3,416.11 tonnes of physical silver to be added to SLV’s vaults[11]. This is the equivalent of 14% of annual mining supply.

This was the largest financial capital inflow in the history of the SLV.

Other silver ETFs across North America and England since late January 2021 have also seen a surge of financial capital which has created additional demand for physical silver.

Changing SLV Prospectus

As reported by Ronan Manly on 15 February 2021[12], the SLV amended its prospectus on 3 February 2021 following the record inflow of financial capital from 29 January – 2 February 2021 and published this amendment on 8 February 2021.

The amendment to the SLV prospectus is as follows:

“The demand for silver may temporarily exceed available supply that is acceptable for delivery to the Trust, which may adversely affect an investment in the Shares.

To the extent that demand for silver exceeds the available supply at that time, Authorized Participants may not be able to readily acquire sufficient amounts of silver necessary for the creation of a Basket.

Baskets may be created only by Authorized Participants, and are only issued in exchange for an amount of silver determined by the Trustee that meets the specifications described below under “Description of the Shares and the Trust Agreement— Deposit of Silver; Issuance of Baskets” on each day that NYSE Arca is open for regular trading. Market speculation in silver could result in increased requests for the issuance of Baskets.

It is possible that Authorized Participants may be unable to acquire sufficient silver that is acceptable for delivery to the Trust for the issuance of new Baskets due to a limited then-available supply coupled with a surge in demand for the Shares.

In such circumstances, the Trust may suspend or restrict the issuance of Baskets. Such occurrence may lead to further volatility in Share price and deviations, which may be significant, in the market price of the Shares relative to the NAV.”

This amendment to the prospectus is material and could (and perhaps should) be interpreted as a default on its existing obligation to existing and new unit holders to deposit silver requisite with the inflow of financial capital and to redeem issued shares with physical upon request.

Stress Point Market Category Description
3 Exchange Traded Funds (ETFs) This unprecedented amendment to the SLV prospectus indicates a severe shortage in available 1000-ounce ‘good delivery’ physical silver bars in the wholesale market.

LBMA London Vaults ETF Holdings

As reported by Ronan Manly of Bullion Star on 8 February 2021[13], 13 ETFs other than SLV also store their physical silver in London vaults. When the physical silver holdings of all 14 ETFs are combined, this accounts for 85.4% of the 33,609 tonnes (or 1.08 billion troy ounces) as of 5 February 2021 apparently held in LBMA vaults in London according to data published by the LBMA.

According to Manly, when other transparent silver holdings are considered, only 4,366.7 tonnes (or 13% of the total silver held in LBMA vaults in London) is the available ‘free float’ in the London silver market.

As silver ETFs have attracted additional inflows of financial capital since 5 February 2021, the amount of required physical silver in London to be vaulted on behalf of the ETFs has increased which has created additional pressure in the London silver market which has manifested itself via the ‘London Silver Lease Rate’.

‘London Silver Lease Rate’

As reported by Chris Marcus from Arcadia Economics and David Jensen on 21 February 2021[14], the ‘London Silver Lease Rate’ (the cost of borrowing physical silver bullion in the London market) has dramatically increased and ‘inverted’[15] (see Diagram 2) signalling significant tightness in the London physical silver market[16].

An inverted lease rate signifies that borrowers of physical silver not only are happy to incur storage and insurance costs of holding physical silver, but are also willing to pay the lender the privilege for doing so.

Stress Point Market Category Description
5 COMEX Silver Futures Market Contract Rollover Spreads (or Differentials)

As noted by precious metals analyst Ed Steer[17], very thin contango[18] contract rollover spreads (i.e. the cost of rolling over a COMEX contract to a forward month) between the COMEX March/May 2021 and May/July 2021 indicates significant tightness in the physical market given that small contract rollover spreads signals that bullion banks are seeking to encourage holders of the COMEX March or July 2021 contracts to rollover to a forward month.

Moreover, backwardation contract rollover spreads (i.e. the cost of rolling over a COMEX contract to a forward month is negative (i.e. you are paid to rollover)) between the COMEX July/September 2021 and September 2021/December 2021 signals that tightness in available physical silver to be delivered in forward months at the COMEX is expected to increase.

Outstanding Open Interest

The “open interest” for the March 2021 COMEX silver futures contract remains extraordinarily large ahead of deliveries commencing on 25 February 2021.

As at the close of business Friday, 19 February 2021, the open interest for the March 2021 COMEX silver futures contract was 58,927 contracts or the equivalent of 9,019 tonnes[19].

The number of contracts which are still open and standing is about 15% higher than at this point in November 2020 (prior to the options expiration of the silver COMEX December 2020 contract).

Diagram 2: London Silver Lease Rate

March 2021 - the Largest Silver Delivery Month in the History of COMEX?

Given the five stress points which can be observed in the physical silver market (as noted above), attention has now turned to the upcoming delivery months for silver on the COMEX noting that these months are March, May, July, September and December 2021.

As noted above in Table 1, the March 2021 COMEX open interest is currently standing at extraordinary large level as of Friday, 19 February 2021. Without significant action by those institutions who are holding short contracts (primarily bullion banks), the March 2021 COMEX contract may be the largest delivery date in the history of the silver market.

Moreover, as of Friday, 19 February 2021, the open interest for the May 2021 COMEX silver futures contract also stands at an extraordinary quantity of 96,432 contracts which is the equivalent to 14,760 tonnes[20].

For historical context, the previous delivery record for silver in the history of the COMEX was in July 2020 where over 17,294 contracts or 2647 tonnes (or 86.47 million ounces) were delivered.

During this period, it was revealed that those institutions that were required to make delivery of 1000 ounce ‘good delivery’ bars had insufficient quantities. This in turn led to a dramatic 60% increase (in $US dollar terms) in the price of silver from $US 17.95 per ounce to $US 28.73 per ounce over the course of a 5-week period as the price of silver was bid up in order to entice sufficient quantities to be sold to those institutions who were contractually obligated to deliver.

This dramatic increase in the silver price is illustrated in Diagram 3.

Diagram 3: Daily Silver Price in $US Dollars

As can be shown by Diagram 3, this elevated price level has been sustained since July 2020 and was sufficient for the quantities of silver required for delivery under the COMEX September and December 2020 contracts which were of a much smaller quantity relative to the July 2020 contract.

The number of COMEX silver contracts that stood for delivery and which actually took delivery from July, September and December 2020 are outlined in Table 2.

Table 2: COMEX Silver Contracts ‘Standing for Delivery’ vs Actual Deliveries[21]

COMEX Contract Month Standing for Delivery Actual Deliveries
COMEX July 2020 Contract 16,834 contracts or

84.17 million troy ounces

17,294 contracts or

86.47 million troy ounces

COMEX September 2020 Contract 10,548 contracts or

52.74 million troy ounces

11,080 contracts or

55.4 million troy ounces

COMEX December 2020 Contract 9,444 contracts or

47.22 million troy ounces

9,337 contracts or

46.69 million troy ounces

Given the dramatic price action experienced in July 2020 when record COMEX deliveries of physical silver were required, the implications for the price of silver in March 2021 and beyond If unprecedented quantities are demanded for delivery coupled with visible signs of stress across the physical silver market (as shown in Diagram 1) are potentially quite dramatic.

The precise point at which the price of silver aggressively rises is unknown. It will be dependent on the physical quantity being demanded and what is available to be supplied at the current price level.

If the volume of physical silver demanded in the March 2021 COMEX contract is able to be met at the current price level, despite the visible stress points in the physical silver market, it is possible, if not likely, that a future month in which the delivery of large quantities of physical silver are demanded, say May or July 2021, may be the point at which the silver squeeze commences.


In the past month, online posts initially published by WSB have created, according to industry experts, an unprecedented tidal wave of demand in the physical silver market which is driven by purchases by ETFs as well as at the wholesale and retail market levels.

This tidal wave has resulted in at least 5 visible signs of stress which can be observed at various points across the physical silver market. Evidence to date suggests that this stress shows no signs of abatement and is likely to persist if not become acute.

The objective of WSB and other new advocates of silver is to facilitate a short squeeze in the market that would result in the price of silver rising exponentially, potentially in a similar fashion to the short squeeze that occurred with Game Stop in January 2021.

Systemic and widespread documented evidence of market manipulation does provide the conditions for a short squeeze to occur within the silver market.

As new institutional and individual investors enter the silver market and knowledge of market manipulation becomes more widely disseminated, the opportunity to realise asymmetric financial returns via the silver market will be more understood and thus creating additional momentum and demand for physical silver via a positive feedback loop.

Looking forward, the March 2021 COMEX silver futures contract is on track to be the largest delivery month in the history of the market, outpacing the prior record set in July 2020.

Forward delivery months such as May 2021 also show a strong level of demand for physical silver through elevated levels of open interest.

Record demand for the delivery of physical silver via the COMEX in the coming weeks and months coupled with unprecedented demand observed in February 2021 and visible signs of acute stress within the physical market provides the necessary conditions for a sharp accelerated rise in the price of silver moving forward.

John Adams is the Chief Economist for As Good As Gold Australia

[1] As outlined in the book “The Big Silver Short”, the COMEX silver futures market is the key price setting mechanism of the international spot price of silver.

Full reference is Marcus, C., (2020), “The Big Silver Short – How the Wall Street Banks have left the Silver Market in place for the Short Squeeze of a Lifetime”, Self-Published, San Bernardino, California, United States of America


[3] See footnote 2.



[6] In September 2020, Wall Street JP Morgan settled with the US Department of Justice with the payment of $US 920 million over admitted instances of spoofing in the COMEX futures silver market by on hundreds of thousands of occasions 15 traders over several years. For more, the following article:

[7] Marcus, C., (2020), “The Big Silver Short – How the Wall Street Banks have left the Silver Market in place for the Short Squeeze of a Lifetime”, Self-Published, San Bernardino, California, United States of America


[9] See the following video entitled “Silver Shortage spreads to 1,000-ounce wholesale market”:

[10] See the following video entitled “INSANE Silver Demand #SILVERSQUEEZE”




[14] See the Marcus-Jensen discussion at the following link:

[15] Given the significant cost of storage and insurance incurred with large quantities of physical silver, the lease rate in the London is typically negative signalling that owners of the physical silver are happy to pay a counterparty to hold their physical silver on their behalf.

[16] As noted earlier in the article, the London silver market is the largest physical market and depository in the world.

[17] See Ed Steer’s interview on Palisades Gold Ratio which was broadcasted on 17 February 2021 -

[18] Contango is the market condition where the future price is trading above the expected spot price.

[19] This was drawn from published final COMEX silver data volume data for 19 February 2021 which was actually published by the CME Group 22 February 2021.

[20] Note that the open interest for forward delivery months have historically been at elevated levels relative to the most immediate delivery month and typically reduce in volume as the delivery date of the contract approaches.

[21] Data documented in Table 2 was kindly provided by Craig Hemke from TF Metals report. 

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