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FX Street: Physical Silver Bullion Squeeze Could Lead to Large Gains

March 22, 2021
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Article by Steven Knight in FX Street

Allegations of ongoing physical supply issues are reaching a crescendo this week as individual investors report difficulty in redemptions of unallocated silver positions from some major mints. In fact, even COMEX is significant demand for delivery with over 30 million ounces of silver having been withdrawn from their depository warehouse in the early part of 2021.

Subsequently, there appears to be significant outsized demand occurring and data suggests that this is investment, not industrial, demand which is potentially squeezing physical silver stocks. This contention is based on the timing of the Q1, 2021 withdrawals from COMEX matches investor activity, not industrial demand.

However, it should come as no surprise that there is a squeeze on given the inflationary pressures building within the U.S. economy. The reality is, with the Federal Reserve’s balance sheet closing in on the $7 Trillion USD mark, inflation was always going to rise significantly and buoy precious metal demand. Inflation is clearly on the march despite the protestations of Fed Chair Powell that any current inflation either does not exist or is only ‘transitory’.

The reality is that the Fed has a big issue on their hands that they are unlikely to be able to solve without radical changes to the way that they handle monetary policy. The possibility of stagflation is real given that the central bank is seemingly allowing inflation to run unchecked due to, arguably, asset bubbles which they have created within equity and financial markets. Any sign of monetary policy failure leading to stagflation is likely to see a flood into precious metals and what we are seeing in the physical markets is the first stage of investors hedging against that risk.

Ultimately, Silver must increase given the historically significant inflation of the U.S. money supply and this snap is likely to .....

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