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#SilverSqueeze – What Actually Happened and Why it Didn’t Work Out as Planned

By Brian Lan, Managing Director, GoldSilver Central

Published on April 10, 2021

Brian Lan looks at why a short squeeze didn’t work on silver and some of the questions posed by GoldSilver Central clients after the “Silver Squeeze”.

Many observers have heard about the Reddit group that recently spurred on many retail investors to short squeeze stocks that hedge funds have big short positions in. The idea is to drive prices of the stock high enough to force the hand of these hedge funds to buy back the stocks they have borrowed to sell, at a loss. It was reported that silver was also the target of a short squeeze after the success they had with GameStop and AMC shares.

WHY DIDN’T THIS WORK WITH THE SILVER MARKET?

The commodities market doesn’t work like the stock market. The shorts reported by the Chicago Mercantile Exchange (CME) or Commitment of Traders Report (COTR) does not mean that all of these shorts are speculative positions or positions that traders have placed to bet that prices will go south for them to make a profit. Refer to Table 1 for the COTR for silver (this data is readily available to anyone). At a glance, using the same lenses as how the Reddit retail investors view heavily shorted stocks, silver would seem like a prime candidate for a short squeeze for both commercial and non-commercial positions. For example, based on the short positions reported on 9 February for commercials, total short positions is 116,717 contracts. Note that each contract is for 5,000 oz. of silver.

Most of these short future positions are in fact hedging against physical silver exposure or miners securing prices in future months to deliver mined silver. In other words, these short futures positions are being offset with physical silver held in their inventory.

Another point to note, we do not know what is on the trading book of each bank and they might have positions not pushed out to the market yet as they have taken on a sizable position. For example, a trader in a bank may have bought a large amount of silver from a fund but has yet to sell it out so as not to move the silver price too drastically. This ride up in silver prices allows them to hedge their risk at a much higher profit and due to the larger number of buyers available, also allows them to get out of their positions even earlier and at a tidy profit. This is contrary to the belief that the silver squeeze will hurt banks and funds like how the Reddit short squeeze in stocks resulted in huge losses for some hedge funds.

The bottom line is, we do not see the full picture from the reports provided from CME or COTR.

Table 1: Commitment of Traders Report

Commodity Futures Trading Commission

OUTLOOK FOR 2021

Platinum plays a key role in decarbonisation and the growth of green hydrogen. Material demand growth from this will be realised within 5 to 10 years. However, the interest of many investors, who had not previously considered platinum, has been piqued by this strategic underpin to its long-term demand. When these investors take a closer look, they will see platinum’s deep discount to gold and palladium and the cost effectiveness and low CO2 of the mild-hybrid diesel powertrain, which greatly enhance the likelihood of platinum investment demand growth.

Since the platinum and gold price lows of 19 March 2020, at US$599/oz. and US$1,474/oz. respectively, platinum has significantly outperformed gold, rising 55% versus gold’s rise of 33% by the end of August. With investment demand and platinum’s fundamental outlook up in 2020, this significantly enhances its attractiveness.

IS IT TRUE THAT FINANCIAL INSTITUTIONS RAISED MARGINS TO PREVENT SILVER PRICES FROM SOARING?

Margins were raised by 18% by Comex but this was not because the institutions wanted silver prices to stay low. Many brokers followed suit too as the positions they had with banks or trading houses required them to place more margins. Margins required for trades is a function of volatility. The higher the volatility, the higher the margins required. This is for risk management and also to protect the interests of investors. This will happen for any asset class, not only for silver. This often has been misconstrued by many to think that financial institutions did this on purpose for their own gains.

PHYSICAL SILVER PREMIUMS SHOT UP SHARPLY, DOES THIS MEAN THERE IS NOT ENOUGH PHYSICAL SILVER?

Physical silver premiums rose by at least 50% or more but it does not mean that physical silver is running out. The sudden sharp increase in physical demand from clients globally due to the silver squeeze, coupled with the Covid-19 measures implemented in mints and refineries, have led to a short-term tightness in physical silver bars and coins. There are still large silver bars available at many vaults around the world but they are not the preferred choice for retail investors. The current ready silver stock – what we term as ex-stock silver inventory – commands an even higher premium due to the influx of demand. Coupled with the need for most retail investors to take possession of their physical silver as soon as possible, the premium for physical silver in the short-term doesn’t look like it will abate.

We have tracked the premiums of ex-stock 100 oz. silver bars – one of the most popular denomination of silver bars purchased by our clients over the years (Figure 1). The highest premiums was from late April until June, which was when the Covid-19 pandemic had just started to spread globally and many countries had implemented measures to stem its spread, including widespread lockkdowns. The premium gradually eased over time as supply finally caught up with demand, up until the recent silver squeeze.

The manpower restrictions due to Covid-19 also meant that production schedules for finished silver products had to be extended, especially with the sudden surge in demand. We expect the premiums to ease once the backlog has been met, but this could take at least 3 months.

Figure 1: Premium for a 100 oz. silver bar

Commodity Futures Trading Commission

WHERE WILL SILVER PRICES GO FROM HERE?

Fundamentally, silver has been in a deficit since 2019, largely due to the increase in physical demand from retail investors and exchange traded products (ETP) investments. With reference to Table 2, year-on-year increase in physical investment was 12% and the increase in ETP investments was 47%. We expect this to continue well into 2021, especially with the recent spotlight on silver brought about by the silver squeeze.

Looking at our in-house technical indicators, silver, just like gold, has just entered into a bullish trend in the medium term, hence the next 3 to 5 years should be good years for precious metals. We expect silver to continue to outperform gold this year, just as it has done last year, during which gold grew 25% and silver was up 48%. If you are looking to invest into silver, remember to buy on dips!

Table 2: Silver supply and demand

Source: The Silver Institute, World Silver Survey 2020

BRIAN LAN is the Managing Director of GoldSilver Central and a member of the company’s Board of Directors. He is part of the team in charge of overall management of the company and is responsible for sales, operational infrastructure and predominantly, global business development. His passion is using technology to transform business processes and advance client outcomes. He also sits on the board of GoldPlus Assets and Fund Express.

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Lee Jia Yi

OPERATIONS & ADMIN EXECUTIVE
Before joining SBMA, Jia Yi worked as an Admin & Reporting Officer in her previous role. She holds a Diploma in Business & Social Enterprise from Ngee Ann Polytechnic. Jia Yi is responsible for managing and maintaining physical and digital files in SBMA, supporting invoicing processes, reconciling receivables and payables, coordinating meetings and conferences. Additionally, she will provide support to the team and assist the Business Director in managing the Association’s office operations and general administrative activities.

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Emily Oh

OPERATIONS & ADMIN EXECUTIVE
Emily Oh is the Operations & Admin Executive, a seasoned professional who values teamwork and effective communication. She is skilled at adapting to new challenges and takes a proactive and resourceful approach to every task. Before joining SBMA, Emily had experience coordinating international travel arrangements and spearheading community initiatives. Her role at SBMA will be providing operational and administrative support for projects and other matters to the team.

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Clara Chang

MARKETING & COMMUNICATIONS EXECUTIVE
Clara Chang joins SBMA as the Marketing & Communications Executive, enriching the team with her extensive experience in content creation, social media management, and digital marketing. Prior to joining SBMA, Clara held the position of Marketing Executive at her previous job. She holds two bachelor’s degrees from the University at Buffalo, one in International Trade and another in Geographical Information Science. Her core duties will include maintaining the SBMA website, managing the quarterly Crucible newsletter, among other responsibilities.

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Mr John Levin

Global Metals
TD Securities
John Levin is the Head of Metal Sales & Trading – APAC at the Toronto Dominion Bank’s Singapore office. Prior to this role, he devoted seven years to leading precious metal sales for the ANZ banking group in his home country, Australia. Notably, from 2009 to 2011, John played a significant role on the management committee of the London Bullion Market Association while serving as the Head of Precious Metals Sales for HSBC Global Banking and Markets in the UK.

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Fabian Lew

MARKETING & COMMUNICATIONS OFFICER

Fabian was a Business Development and Marketing Associate before joining SBMA. He graduated from Singapore Management University with a Bachelor’s degree in Economics.

He has joined SBMA since February, 2022.

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Margaret Wong

BUSINESS DIRECTOR

Margaret Wong, Business Director at SBMA (Singapore Bullion Market Association), brought valuable experience from her previous role at the World Gold Council (WGC). Her tenure at WGC provided her with extensive exposure to the gold community in Singapore and the broader region. This background has been instrumental in establishing strong working relationships within the industry.

Margaret’s role at SBMA encompasses a diverse range of responsibilities. She oversees office management, business support processes, finance, and administrative functions essential for the smooth operation of the team and management committee. Additionally, Margaret handles membership matters, member communications, and addresses public inquiries related to SBMA.

One of Margaret’s key responsibilities is coordinating with the Event Management Company for SBMA’s prestigious annual event, the Asia Pacific Precious Metals Conference. This flagship conference plays a crucial role in the industry, making her involvement pivotal in its success.

Described as resourceful and self-motivated, Margaret Wong brings a wealth of skills and experience to her role at SBMA, ensuring efficient operations and effective engagement within the precious metals community in Singapore and beyond.

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Albert Cheng

Chief Executive Officer

Albert Cheng joined the World Gold Council in March 1993 as a Regional Manager, becoming Managing Director, Far East in 2003. He retired at the end of March 2015 and was subsequently named its Advisor. He has also been an International Advisor to the Shanghai Gold Exchange since 2002.

His marketing career began with Dentsu Young & Rubicam, Hong Kong in the early 80’s. He began gold marketing in July 1985 when he joined the Royal Canadian Mint as a Regional Manager for Southeast Asia.

He was appointed honorary CEO of SBMA in November 2015. He is responsible for the success and strategic development of SBMA, represents the interests of the Association, and is responsible for all the legal and regulatory aspects of the work of the Association. He is the primary contact for regulators and government bodies on bullion market development.

Ms Pawan Nawawattanasub

Ms Pawan Nawawattanasub

CEO
YLG Bullion Singapore Pte Ltd

Pawan is the CEO of YLG Bullion Singapore and founder of YLG Bullion International. She has almost 40 years of experience in the jewellery industry and established YLG in Thailand in 2003. In 2012, she brought YLG to Singapore. She sits on the Board of Directors of the Thailand Gold Traders Association, the Thailand Futures Exchange’s Arbitration Committee, and the Rotary Bangkok committee. She holds a master’s degree in Political Science.

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Mr Shaokai Fan

Head of Asia-Pacific (ex China) and Global Head of Central Banks
World Gold Council
Shaokai Fan is the Global Head of Central Banks at the World Gold Council, responsible for advising governments on gold matters, and enhancing the gold market through engagement, dialogue, and thought leadership. He works directly with central banks and sovereign wealth funds on investment considerations. Prior to this position, Shaokai held multiple roles at Standard Chartered Bank, including Director for Asia Strategic Initiatives and Associate-Director for Public Sector coverage. Shaokai holds a Masters of Public Administration from Columbia University and the London School of Economics, and an undergraduate degree in finance and economics from New York University.

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Mr Alan Liew

Head of Bullion & Commodities Trading
United Overseas Bank Limited
Alan is Head of Bullion and Commodities Trading for Group Trading in Global Markets, United Overseas Bank (UOB). Alan joined UOB and started the bank’s commodities trading business in 2014, previously he spent eight years in Standard Chartered Bank (SCB) trading both precious and base metals. During his tenure at SCB, he obtained the SGE gold trader licence and was part of the pioneering team for the SGE business and the FX quantitative trading team. Prior to trading, he worked for Monetary Authority of Singapore in the Financial Risk Management Division. He holds a BSc (Hon) in Computer Science at National University of Singapore and a MSc in Financial Engineering at Nanyang Technological University.

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Mr Nikos Kavalis

Managing Director
Metals Focus Singapore Pte Ltd
Nikos Kavalis is a founding partner of Metals Focus. He has over 20 years of experience in precious metals, having previously worked for the Royal Bank of Scotland and GFMS. Since September 2019, Nikos has been based in Singapore, where he also runs the local subsidiary of Metals Focus.

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Mr Nuttapong Hirunyasiri

CEO
MTS Gold Global Trading Pte Ltd
Nuttapong Hirunyasiri is the CEO of MTS Gold Group, one of Thailand’s top 10 companies and top 3 bullion companies. He started MTS Gold Group’s first overseas office in Singapore and has been expanding the group business internationally. He focuses on product development and innovation for gold investment, with the aim of being a leader in providing the full suite of gold investment services in the ASEAN region.

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Mr Raman Walia

Executive Director, Head of Commodities Sales – APAC
JP Morgan Chase Bank N.A.

Raman is Executive Director and Head of Commodities Sales, APAC, for J.P. Morgan. He joined JPMorgan in 2008 in New York, moved to Singapore in 2011, and helped expand the precious metals business in the region. Raman has an MBA from Cornell University, and likes to travel in his spare time.

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Mr Andrew Clarke

Head of Brink’s Global Services
Brink’s Global Services Pte Ltd

Andrew Clarke is the Head of BGS (Brink’s Global Services) for Singapore, Indonesia, Malaysia and Brunei. He has held various leadership positions throughout his career in secure logistics and risk management with Brink’s, which started in Hong Kong in 2010. Andrew relocated to Singapore in 2018 to expand the precious metals line of business along with Brink’s portfolio of services and industries.

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Mr Kazuya Naoki

Head of Metals, Asia
ICBC Standard Bank Plc, Singapore Branch

Kazuya (Kaz) Naoki is the Head of Metals, Asia of ICBC Standard Bank in Singapore and is responsible for the precious & base metals sales and trading in the region. He joined Standard Bank Plc Tokyo Branch in 2008 and was relocated to its Singapore Branch in 2013 whose controlling stake was acquired by the Industrial and Commercial Bank of China in 2015. Prior to joining Standard Bank, Kaz spent 11 years focusing on commodity trading and risk management with Mitsui & Co in Tokyo, Sydney and London. Kaz has been serving on the SBMA Management Committee since 2016.

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Mr Vinh Nguyen

Head of Precious Metals, Asia
StoneX APAC Pte Ltd

Vinh Nguyen joined StoneX Group in Singapore at the beginning of 2008 and responsible for its APAC precious metals activities since 2019 until now.

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Mr KL Yap

General Manager, Singapore Refining Business Unit
Metalor Technologies (Singapore) Pte Ltd
KL YAP is the General Manager of Metalor Technologies (Singapore) Pte Ltd’s Singapore Refining Business Unit. He joined Metalor in 2013, initially in Refining Sales. In 2014, he became Refining Business Unit Manager, leading the development of a new precious metal refinery. KL was Vice Chairman of SBMA from 2017 to 2021, now serving as Chairman. With a degree in business commerce, finance, and marketing, he brings prior experience from refinery and heavy industries.