The Full Story Behind the Recent Silver Squeeze

Treated like a pop star... Reddit day traders jump into silver... The full story behind the recent silver squeeze... The fireworks are far from over... Silver's role in the 'Melt Up'... Why you should get on board... The best move to make in silver today...

Editor's note: Today's Digest is a little bit different from our usual fare...

Regular readers will recall the "GameStop story" in late January and early February. An army of stimulus-equipped day traders battled against the Wall Street hedge funds on a few epic "short squeezes" involving the video-game retailer and other beleaguered stocks.

Then, with the day traders hungering for more, the saga shifted in another direction...

Silver.

So in the January 28 Digest, we highlighted the timely advice of one of our in-house silver experts, Garrett Goggin. He had sent an urgent update to his Silver Stock Analyst subscribers earlier that evening about the episode of "good upside volatility where you can make bucketloads of money"... and we made sure Digest readers knew about it as well.

Today, we're turning to Garrett once again to see how the whole thing played out in the following days. As you'll see, he believes this is just the start of a major change for silver...

My Twitter exploded on January 29...

My followers increased by more than 1,000 in an hour. My tweets were liked and retweeted hundreds of times in seconds. I (Garrett Goggin) have never seen anything like this.

I'm a silver expert, so I'm not used to being treated online similar to pop stars like Justin Bieber and Katy Perry. But something changed that day...

Silver was in play.

After the "WallStreetBets" group on Reddit made so much from a short squeeze in GameStop (GME) and similar stocks that were previously "left for dead"... they decided to take on the biggest short story in the world – silver.

Some folks believe the world's major banks work with the Federal Reserve to keep a lid on silver and gold prices...

According to this theory, the Fed and the banks need to manipulate precious metals prices to maintain the easy-money policies that keep our debt-laden economy afloat.

If silver and gold shoot higher, it undermines confidence in the U.S. dollar. That could spark significant inflation.

As a result, these theorists argue that major banks sell short hundreds of thousands of silver and gold futures contracts worth hundreds of millions of dollars to keep their prices from rising.

The Reddit crowd picked up on this theory – and jumped into the silver trade...

Over that late-January weekend, the average precious metals dealer was cleaned out of hundreds of thousands of silver ounces. The average volume was 10 times what it would be on a typical weekend.

Even now, as I write this essay in early March, the U.S. Mint is still listing most of its silver products as unavailable. Dealers who do have stock are listing one-ounce silver coins for $40 or more – 50% higher than the $27-an-ounce futures price.

Similarly, trading volume in the two bullion funds – the iShares Silver Trust (SLV) and Sprott Physical Silver Trust (PSLV) – also went through the roof. Shares of the SLV exchange-traded fund ("ETF") rose from 615 million to 729 million in one week. This was the largest weekly jump ever. And SLV had to acquire 114 million silver ounces overnight to back the shares.

SLV added new disclaimers in its prospectus on February 3 that stated, "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."

In other words... SLV is having trouble sourcing physical silver.

The average yearly silver supply is about 900 million ounces. Industrial demand and coinage consume all of that production. And the additional demand from ETFs creates a net deficit... The Silver Institute estimates ETF demand in 2020 totaled about 100 million silver ounces. The influx of interest into SLV took that down in one week.

The price of silver surged from $26 per ounce to $30 per ounce on February 1. That's a 15% jump over the weekend.

COMEX, the major U.S. commodities futures exchange, immediately changed its rules to discourage silver speculation. Since then, silver has held up at around $26.50 per ounce.

But the fireworks are far from over...

Trust me, this was the opening shot toward true price discovery...

Just consider what happened with SLV in March last year... Investors shaken by the plummeting stock market rushed to precious metal investments.

SLV shares outstanding rose 16% in a month – from 382 million to 445 million in March 2020. So the ETF took down 63 million silver ounces to cover the new capital infusion. That led to a 150% rise in the price of silver over the next five months. Meanwhile, SLV purchased 106 million silver ounces in just one week in February 2021.

In other words, the recent demand surge was even greater.

Physical silver is gone, folks. It will take many months before dealers can restock. Now, it's just a matter of time before the spot price of silver streaks higher to balance supply with demand.

This is the start of a major change...

Silver is one of the cheapest assets on the planet. It could be the only asset that is trading at the same price as it was 40 years ago.

Yet, the volume of dollars circulating has exploded 1,125% since 1980. If a monetary asset like silver were priced in relation to the currency growth, it would be valued at nearly $200 an ounce today.

The price and volume surge we saw earlier this year is what you look for to identify an asset that's ready to take off. That's why $100-an-ounce silver is well within reach over the next couple of years.

Here's the deal...

Silver is a key player in the 'Melt Up' we're experiencing right now...

You are watching the Melt Up occur in front of your eyes.

My colleague and True Wealth editor Steve Sjuggerud has been talking about the Melt Up opportunity for several years. What he's describing is the speculative furor that comes with the final gasp of a long bull market.

And right now, that's exactly what we're seeing...

Too many dollars are chasing too few assets. Low interest rates are causing investors to seek out returns any way they can. Speculators are running wild, armed with stimulus checks and the knowledge that the Fed will bail out the market with even more stimulus if it ever runs into trouble.

And they're right... the Fed will likely never raise rates, as the debt-heavy economy would crash.

Stock market multiples are off the charts by almost every measure – price to sales, price to book, and more. The stock market's total market cap is trading at 196% of the U.S. gross domestic product. That's legendary investor Warren Buffett's favorite valuation measure... And it's the highest it has ever been.

But regardless, as long as the Fed continues easy-money policies, the market will continue higher. This happened in every historical period of high inflation... Stock markets rose to the moon, while currencies were destroyed.

There is nothing wrong with rising asset prices...

But when easy money begins to create social, political, and economic chaos... it's a signal that something is wrong.

You see, the government has trillions of dollars of unfunded liabilities. In order to make this amount more manageable, the government encourages some inflation.

As inflation rises, the dollar purchases less... That monthly $1,500 Social Security payment from the government purchases less and less over time.

Our government has $27 trillion of outstanding debt (and growing). It will never pay that back. But a modest amount of inflation will reduce that burden in time.

Anyone on a fixed income is getting crushed... Investments into bank CDs or other traditional safe assets receive barely any interest. Over time, savings kept in safe investments lose purchasing power due to inflation.

As a result, investors and savers are forced to seek more risk to obtain some return, leading to an equity market that is overvalued by every metric. The stock market could rise to 100,000... but at the same time, a bottle of soda is going to cost $20.

I'm a traditional financial guy from the mutual fund industry in Boston. I am a chartered financial analyst, certified market technician, and hold an MBA.

I've always been a believer in alternative assets.

Natural systems, like the stock market, can't grow exponentially at 3% forever.

The endless monetary growth has to result in serious inflation at some point. There has to be a shift to real assets as the dollar loses value... History shows us that eventually, investors will flock to stores of value, like silver.

And the shift to real assets is already underway, folks... For thousands of years, silver has been the chosen investment. This time will be no different.

That's why it's time for you to get on board right now...

About a year ago – on March 17, 2020 – I sent my Silver Stock Analyst subscribers a rare special update proclaiming the "Buying Opportunity of Your Lifetime" in silver.

Silver had just been crushed as the COVID-19 panic swept up practically everything in its path. At the time, the price of this precious metal plunged 28% in a single week.

But in that update, I laid out exactly why I remained so bullish on silver and related stocks despite the recent sell-off. As I explained to my subscribers...

The Federal Reserve is going to release a nuclear bomb of stimulus.

As all that paper money works its way through the financial system, it will send precious metals prices soaring. And as I said, when gold prices spike higher, silver absolutely skyrockets.

Already, the central bank announced $500 billion in repos per day last week. "Repos" refer to large financial institutions lending their securities to the Fed overnight, in return for cash.

When the big brokers are strapped for cash, these repo lines are a lifeline. So a big jump in repos reflects lots of brokers grabbing for that lifeline.

In addition, Fed Chair Jerome Powell cut rates by 100 basis points (1%) on Sunday night. He also announced new quantitative easing measures, like the kind the Fed enacted in the wake of the 2008 crisis. This time, the Fed will buy $500 billion in Treasury securities and $200 billion in mortgage-backed securities.

Trust me. That's not enough. Much more easing and stimulus is on the way.

Nearly a year later, we now know that's exactly what happened. And my "Fave 5" portfolio of five top silver miners has thrived amid the growing stimulus... It's up 200% since then.

A couple of months after that initial buying opportunity, in late May, I told my subscribers to "Get Ready for a Moonshot"... From there, silver rose 50% over the next few months. And of course, subscribers who followed my advice on silver stocks did even better.

Our long-term track record speaks for itself... The Silver Stock Analyst portfolio surged 401.3% over a five-year span through the end of 2020 – far beyond silver's 89.7% return over the same span. This performance even crushed the Philadelphia Gold and Silver Index, which only gained 218.3% from 2015 through the end of 2020.

Now, today, I'm revealing the No. 1 way for you to get ready for the next leg up in silver...

With everything playing out as I explained today, silver has much more room to run.

The last time silver rose this quickly was in 2016... And back then, my No. 1 pick in this space ran up 500% in less than six months – from $3 per share to $18 per share.

The next run higher in what I'm calling the "silver king" is just beginning today...

As silver explodes higher and nears its fair value, my subscribers will reap the rewards in this stock – and my four other recommended ways to play this surge. I hope you will, too...

For a short time, you can claim instant access to all my research in Silver Stock Analyst at 70% off the regular price. So if capitalizing on the next great silver boom sounds like something you'd be interested in, I encourage you to click here to get started immediately.

New 52-week highs (as of 3/2/21): Berkshire Hathaway (BRK-B), CBRE Group (CBRE), Comfort Systems USA (FIX), MasTec (MTZ), and Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP).

In today's mailbag, more feedback on Dan's most recent Friday Digest, a note about the bond market (which we wrote about on Monday), and a reply to yesterday's Digest. As always, send your notes to feedback@stansberryresearch.com.

"Dan Ferris is a great thinker in the vein of the best philosophers throughout the ages, who also happens to be an excellent stock analyst. I believe the first quality can improve the second, but not always vice-versa. I've read many great essays from anthologies covering writers from the last 2,000+ years, and Dan's piece on Gold and Being Human belongs right amongst them. It's no coincidence that he's also a great and frequent recommender of excellent books – also a rare and precious commodity these days. Thanks to a writer who inspires and piques my imagination for digging deep for the many layers of the meanings of gold." – Paid-up subscriber Gary S.

"Again, I am impressed with Dan and his fascinating and creative ideas on gold. Dan, maybe you should surprise us with a book of poetry. That would be fun to read." – Paid-up subscriber Sue M.

"The Fed isn't going to change its story until something breaks.

"The government needs inflation, actually desperately, otherwise they are just another printing central bank/government which will lose its power to other nations interested in the reserve currency position and better placed to increase their position. The fact that rates are increasing helps their inflation game plan. They love it until something breaks.

"My bet is that a huge percentage of politicians are in stocks thinking their game is still working. This is the fine line they are walking, why not continue?" – Paid-up subscriber Al M.

"I live in rural Northern Great Plains, with big box stores 50 (East) to 70 (West) miles away from my home. Dollar General (which I hold shares of) is 14 (East) and 37 (West) miles away, so I tend not to spend fuel and shop at DG 1 to 2 times a week. About 2 months ago, I noticed an 'across the board' rise in their prices, some by the insidious practice of smaller serving size, yet 'old price.'

"Inflation is starting already, Propane for heat and cooking only doubled, where in the South they about 5X'd the prices of natural gas and electricity. On the portfolio front, I am getting nervous about the melt-up, I just took an infusion of new money into my self-directed IRA, and am having trouble finding assets to invest in.

"The day after recommendation, they are over buy up to prices, though I've managed to use limit orders to obtain some, just below the buy up to prices. Even in the latest pull-back days of drops above 3%, just a very few limit orders were filled.

"It's tempting to 'stretch' the buy up to price by 5% or so, but my experience is: those buys fluctuate around zero, one day up, next day down a few percentage points, not really going anywhere, though this is over a very short timeframe, yet.

"So, overall, I'll be trimming my losers to cash, following trailing stops, and for the most part, letting my 100% winners run.

"One caveat there, is to still follow limit stops, due to price falls or way out of whack price valuations. I've sold 3 100% stocks so far because of these reasons. It took two 100% stocks to fall near or at zero to convince me to divest, it's that hard to let go of winners!

"Divest because of sky high valuation? That is because I value Stansberry advice, and did it to teach myself discipline, in preparation for the coming melt-down. Thanks, guys, for all your advice, Keep it coming my way!" – Paid-up subscriber Gerald F.

Good investing,

Garrett Goggin
Palm Beach, Florida
March 3, 2021