$XAU $SLV $USD
“Shortages of The Devil’s Metal suggest that $50oz silver is not too far off“– Paul Ebeling
- Premiums on physical silver coins are at record highs and shortages are widespread internationally. This is only possible if silver futures are not priced for a sudden flood of monetary demand.
- Monetary demand feeds on itself, as the higher the price goes for a monetary asset like silver, the higher the demand for it goes, risking a USD run.
- Monetary demand for silver suddenly woke up in early February, causing shortages and rare backwardation in silver that we last saw in March 2020, September 2015, and February 2011.
- After each of those backwardation frames, the paper price of silver spiked within months as arbitrageurs moved in to bridge the physical-paper gap.
- This backwardation is most similar to February 2011, with silver nowhere near lows, and if history aligns, it suggests we are only months away from $50oz silver
Demand for physical silver has spiked, and physical shortages at coin dealers are acute worldwide.
New American Silver Eagles from the US Mint are out of stock at even the largest US-based dealers and they are only selling in presales at near 50% premiums. A big London-based precious metals retailer, is out of silver coins.
This current backwardation, from a technical outlook, looks similar to the backwardation of February 2011 because silver was nowhere near a low in February 2011, and is it not now.
If silver is in backwardation now after only a brief correction from $30, this is very close to what happened 10 yrs ago when silver fell into backwardation after a very brief correction from $31 to $26. After that, silver rode a slingshot to just shy of $50.
We do not believe that the timing this time around will not be an exact repeat. History never repeats exactly, but it rhymes.
That said, I believe we are within months of silver reaching new all-time highs above $50oz.
*Backwardation: Backwardation is when the current price of an underlying asset is higher than prices trading in the futures market. It can occur as a result of a higher demand for an asset currently than the contracts maturing in the coming months through the futures market. Traders use backwardation to make a profit by selling short at the current price and buy at the lower futures price.
Have a healthy day, Keep the Faith!