(Commercials pay up!)
Silver Stock Report
by Jason Hommel, March 3, 2008
What is a short squeeze?
A short squeeze is one of the most exciting events in finance, and could drive silver to $100/oz. very quickly! A short squeeze happens when those who manipulate the market begin to act according to old Wall Street rhyme,
“He who sells what isn’t his’n, buys it back or goes to prison!”
The silver shorts, who have been one of the key forces capping the price of silver ever since 1980, are buying back the silver they sold, the silver that they don’t have, the silver that may not exist, and they are buying “contracts for it” from people who might not have it either, in a rising market, because the shorts have begun to panic.
Another way to say it, is that the fat cats are beginning to wake up, repent and change, and realize the error of their ways! Perhaps we are seeing the inevitable failure of a 100+ year war of the international bankers, a war waged against an inherent property of silver. But silver is a monetary metal, and the failure to recognize that truth has consequences.
Dan Norcini reports at http://www.jsmineset.com/ that the commercial shorts in silver last week were “buying on the way up!”
The commercials are buying silver futures contracts from the category of traders that is labeled “non reportable” which are mostly small capitalized individuals, while the funds, or “speculators” have not changed their long positions much.
Short Squeeze definition:
“Short squeezes result when short sellers cover their positions on a stock. This can occur if the price has risen to a point where these people simply decide to cut their losses and get out. Since covering their positions involves buying shares, the short squeeze causes an ever further rise in the stock’s price, which in turn may trigger additional covering.”
The reason why a short squeeze is so exciting is that in theory, there is no limit to the upwards price movement, especially if there is a shortage.
This is the kind of event that could drive silver prices to $100/oz. or higher very quickly. The chance of such an event is higher now than ever before, in my opinion.
As of Feb 26th, the commercials are long 53,358 contracts, and short 126,584 contracts, for a net short position of 73,226. Multiplied by 5000 oz. per contract, that’s 366 million ounces of silver that they might need to buy back, on the NYMEX alone.
But NYMEX only has 87 million oz. of silver in the warehouses, registered for delivery. http://www.nymex.com/warehouse.aspx
Thus, there is a shortage. And as they shorts pay up, the shorts are getting squeezed.
(The 366 million oz. that they need to buy back does not count short positions “over the counter”, nor does it count “pool accounts” or unallocated silver storage, nor silver certificate programs, nor does it count failed silver deliveries from corrupt coin dealers. )
Three hundred and sixty six million ounces is a lot of silver when the world mines only about 650 million ounces of silver per year, and when world industry consumes more silver than that each year. Thus, the shorts can’t get 366 million ounces of silver from the mines; as that silver, and more, is already being purchased.
A mere 50 million ounces of silver being bought by investors in a year caused the price of silver to double from about $7/oz to $14.
If the silver does not exist to buy, a real buying frenzy and panic could break out.
A short squeeze took place when the silver price hit $50/oz. in 1980. That squeeze was ended when they changed the rules to allow no new long positions! (And when the Fed allowed interest rates to rise above 20%!)
The last time we saw a mini short squeeze in silver was around 1997, when Warren Buffet put an end to the squealing and panic of the silver shorts (and caused them to really worry) by announcing that he had invested less than 1% of Birkshire Hathaway’s net worth in silver. That caused the silver price to rise from about $5 to $7 very fast.
A short squeeze drove palladium prices up from around $250/oz. to $1000/oz. back in 2000, due to temporary failed Russian deliveries (that resumed). That short squeeze ended when the TOCOM paper exchange put limits on the daily price changes, and let contracts be settled for cash, instead of palladium.
A short squeeze drove nickel prices up to more than double, to $23/lb. in June last year. That short squeeze temporarily ended when they ruled that it was illegal for two of the largest holders of physical nickel in LME warehouses to own nickel, and had to sell!
But unlike the other two times in silver, there might not be any major billionaire for the shorts to falsely “blame.” And they might not be able to change the rules. This time, there might be a real shortage! They might have to blame themselves for being so reckless as to sell silver that does not exist to a world that consumes more silver than it mines.
We might see silver prices continue the parabolic move up. We might see failed silver deliveries with cash settlements. We might see further panic for real silver. We might see panic among industrial users who must buy silver or shut down their businesses. We might see the end of the NYMEX exchange itself. We might even see officials from the Commodities & Futures Trading Commission (CFTC) going to prison!
Why might the CFTC officials go to prison? Because they lied, and continue to point to the same lies to justify their inaction and incompetence. In May 2004, they lied, saying that manipulation in silver could not exist as long as there was unrestricted access to the market by longs (p. 5), but in the same report, they admitted that position limits prevent longs from entering the market (p. 8)!
Michael Gorham, author of that report, voluntarily resigned 3 weeks after writing it, in 2004.
That is why I continue to point out that there are position limits in silver contracts at the NYMEX. Position limits are the achilles heel of the world’s fraudulent paper and electronic monetary system. Position limits are trade barriers and unfair, and are clearly the opposite of free market principles. Billionaires who would take on the desperate silver shorts need to know about that obstacle, so they can figure out how to overcome it.
Position limits were imposed to protect the silver shorts (but that’s not working, just like all trade bariers backfire), and they are bleeding money to the tune of $366 million dollars for every dollar that the silver price rises. And if they cannot or do not cover, then they lose $3.7 billion for every rise of $10.00/oz.! And in case we go over $100/oz., they lose $37 billion for every $100 rise in the silver price (if they can’t cover.)
Here’s a great article on the silver to gold ratio:
A study of the silver to gold ratio shows quite clearly why the price of silver should be about $100/oz. right now, or more.
Right now is not a time period of business as usual. A short squeeze is a very unique event. It’s unusual and rare.
This is the beginning of what could be the event that has been long predicted by myself and many other physical silver investors. This is exactly why you need physical silver in your own safe, and why you should not trust any form of paper promises, certificates, or pool accounts, nor should you trust anyone to hold your silver for you.
You ought to get silver now. No delay. Not even one day. Get cash from your bank, and get yourself to your local coin shop before they close their doors to the public. I’m serious. No joke. Act now. This is the beginning of what could be the long awaited major panic crunch time.
Buying silver ought to be your top priority right now. In fact, the situation is so dire, that if I had a job and a 401k, that I’d seriously consider quitting my job to cash out the 401k to invest in silver; especially if the 401k contains more than a year’s salary.
If you order silver over the internet or mail, then don’t order all your silver at one time. Instead, spread out your orders among several dealers, or spread out over time, in case they begin to fail.
The conditions were so ripe for this short squeeze, that this is why I got my silver long ago.