I woke up on Saturday to see #silversqueeze trending on Twitter.
I’ve been a long-term bull on silver. I started acquiring physical silver 3-4 years ago when the price was around $14-15 per ounce.
My original investment thesis was based on the reckless monetary and fiscal policy governments across the world have been implementing for the past decade. My thought process went as follows:
Continuous money printing will destroy all fiat currencies over the long-run.
The massive amount of quantitative easing seen by central banks has created an addiction to low interest rates and artificially increased the price of fixed income instruments.
Federal debt levels continue to increase. Eventually this debt will need to be paid off in the form of higher taxes or through additional dollars printed.
There has been no fiat currency that has ever survived over the long-term.
If and when there is a hyperinflationary event, real assets like silver will increase in price and could be used for barter as it will hold its value.
I’m still a long-term silver bull and believe this thesis holds up even better in the post-COVID environment. So when I saw the original Reddit post on how silver could go to $1,000 per ounce and #silversqueeze trending on Twitter I thought it would be good to write down a more formal post on the silver trade.
Physical silver is out of stock
Go on any bullion website and see if you can purchase physical silver. Everywhere I check it is out of stock. The only thing I could find was a 1996 American Eagle Silver Dollar that is selling for $79.99 per ounce.
APMEX later reported on their website this afternoon the following message:
“Due to unprecedented demand on physical silver products, we are unable to accept any additional orders on a large number of products, until global markets open Sunday evening.”
If you search any bullion dealer they all have the same type of message. Either they are all out of stock on physical inventories or they are waiting until the market opens on Sunday evening to begin trading again.
What this basically means is that bullion dealers have no idea how or where to price their physical inventory. This is likely why APMEX is selling a 1996 American Silver Eagle for $79.99 per ounce - there are bids out there, but the ask by market makers is currently unavailable.
What is more interesting, if you look at $SLV calls, the options market is implying as if silver is going to $50 in the mid-term. Look at the last column in the picture below called Open Int. (open interest). For instance 149k contracts on the March 30 strike is extremely large.
As Zero Hedge penned this morning, "Everyone we talk to is afraid of a gap up at Sunday night market open" - Tyler Wall, CEO of SD Bullion.
I’m guessing when the silver markets open Sunday evening there will be a decent gap up in the price of silver. I’m betting the price goes to $30-32 per ounce and continues to rise into the week. If the price tests, then beats the historical high of $50 I bet the price will go to $100. At minimum, I think the gold to silver ratio will meet the historical average of around 47 to 1, giving silver an implied price target of $39 per ounce.
The gold to silver ratio and what it means
The gold to silver ratio represents the number of ounces of silver it takes to buy one ounce of gold. This ratio was originally set by old forgotten governments when gold and silver were the preferred currency of barter. The ratio helped provide a form of monetary stability.
To get this ratio you dividend the current gold price by the current silver price. With the price of gold at $1850 and the price of silver at $27, the current gold to silver ratio is 68x.
According to Perth Mint Bullion, the average gold to silver ratio during the 20th century has been 47 to 1. If the ratio eventually divergences back to this historical ratio, and gold stays at the current price, the implied price for silver should be $39 per ounce.
How I am playing the silver trade
I am playing the silver trade a couple of different ways. First I own a substantial amount of silver relative to my net worth in physical form. I plan to hold this as a long-term inflation hedge and a way to short the entire system.
I also hold shares of the $SLV ETF as a short to medium-term trade. This ETF is a liquid instrument and allows me to bet on the price of silver without taking physical inventory. I should note that I like physical silver over the long-run compared to a paper ETF.
In addition, depending on where we open tonight and tomorrow morning, I may speculate in some silver mining ETFs to get leverage on the upside. If the price of silver rises substantially, silver miners will get a significant amount of operating leverage and begin to print cash as fixed costs should remain the same.
A few silver ETFs I am looking at are $SILG, $SIL and $SLVP. If I end up buying some silver mining ETFs it will be for speculative purposes on the short-term price swing in silver and not risk a significant amount of capital.
Is silver going to go to $1,000? I don’t think it is likely in the short-run, but there is always a chance. I do think there are positive fundamentals for the entire silver market over the long-run which will make this asset class appreciate in value.
As long as the reckless monetary and fiscal policy is continued by governments across the world, the positive fundamental backdrop will continue to benefit owners of real assets like silver. I don’t see this changing anytime in the near-term as government institutions are addicted to cheap money like a drug addict is addicted to the next hit.
Full disclosure: I own physical silver and $SLV. I will buy more or sell more anytime. I don’t short and I do not use options.
Check out this sweet Silver Investor Hat from my good friend at @stockmarkethats. If silver goes to $1,000, this hat will go down in history as a collectors item.
Disclaimer: The publisher does not guarantee the accuracy or completeness of the information provided in this page. All statements and expressions herein are the sole opinion of the author or paid advertiser.
Alpha Letter is a publisher of financial information, not an investment advisor. We do not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient.
THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN.
No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.
Any projections, market outlooks or estimates herein are forward looking statements and are inherently unreliable. They are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur. Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein. The information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and the publisher undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional material.
The publisher, its affiliates, and clients of the a publisher or its affiliates may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities). To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.
Neither the publisher nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.
By using the Site or any affiliated social media account, you are indicating your consent and agreement to this disclaimer and our terms of use. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile or any other means is illegal and punishable by law.
For Full Terms of Use Click HERE. For the Privacy Policy Click HERE.
alphaletter.co (“Alpha”) is a website owned and operated by Substack. Alpha is paid fees by the companies that make investment offerings on this website. Be aware that payment of these fees may put Alpha in a conflict of interest with the investor. By accessing this website or any page thereof, you agree to be bound by the Terms of Use and Privacy Policy, in effect at the time you access this website or any page thereof. The Terms of Use and Privacy Policy may be amended from time to time. Nothing on this website shall constitute an offer to sell, or a solicitation of an offer to buy or subscribe for, any securities to any person in any jurisdiction where such an offer or solicitation is against the law or to anyone to whom it is unlawful to make such offer or solicitation. Alpha is not an underwriter, broker-dealer, Title III crowdfunding portal or a valuation service and does not engage in any activities requiring any such registration. Alpha does not provide advice on investments or structure transactions. Offerings made under Regulation A under the U.S. Securities Act of 1933, as amended (the "Securities Act") are available to U.S. investors who are “accredited investors” as defined by Rule 501 of Regulation D under the Securities Act well as non-accredited investors, who are subject to certain investment limitations as set forth in Regulation A under the Securities Act. In order to invest in Regulation A offerings, investors may be asked to fill out a certification and provide necessary documentation as proof of your income and/or net worth to verify that you are qualified to invest in offerings posted on this website. All securities listed on this site are being offered by, and all information included on this site is the responsibility of, the applicable issuer of such securities. Alpha does not verify the adequacy, accuracy or completeness of any information. Neither Alpha nor any of its officers, directors, agents and employees makes any warranty, express or implied, of any kind whatsoever related to the adequacy, accuracy, valuations of securities or completeness of any information on this site or the use of information on this site. Neither Alpha nor any of its directors, officers, employees, representatives, affiliates or agents shall have any liability whatsoever arising from any error or incompleteness of fact, or lack of care in the preparation of, any of the materials posted on this website. Investing in securities, especially those issued by start-up companies, involves substantial risk. investors should be able to bear the loss of their entire investment and should make their own determination of whether or not to make any investment based on their own independent evaluation and analysis
First time reading your newsletter. Really enjoyed it.
It's been nearly a year since this post, and I wonder where your thinking is regarding physical silver and silver ETFs, futures, etc. Little has changed with monetary policy and inflation appears less transitional than promised. Still a silver bull?