Silver Short-Squeeze Potential

zealllc.com / Adam Hamilton / June 2, 2017 

Silver has suffered a lackluster year so far, really lagging gold’s upleg.  Sentiment is still reeling following silver’s crushing selloff from mid-April to mid-May.  But that plunge was largely driven by extreme silver-futures selling by speculators, including a blistering spike in short selling.  The resulting excessive shorts have left silver with excellent near-term potential for a short squeeze, which would catapult it rapidly higher.

Technically, silver ultimately acts like a leveraged play on gold.  The yellow metal has long been silver’s dominant primary driver.  Investors and speculators alike flock to silver when gold is rallying, forcing this tiny market to surge dramatically.  But when gold sentiment is weak due to lackluster price action, silver demand from traders dries up.  Thus silver drifts listlessly or grinds lower, compounding bearish psychology.

As of the middle of this week, silver was only up 8.9% year-to-date.  That actually bested the beloved S&P 500 broad-market stock index, but it’s still considered pretty weak.  That’s because gold has rallied 10.3% YTD.  Silver’s gains and losses over any given span often about double gold’s, since the silver market is radically smaller.  This is readily apparent in the latest world fundamental data for both metals.

Last month the Silver Institute published its World Silver Survey 2017, the definitive read on global silver supply-and-demand fundamentals in 2016.  It reported total physical silver demand last year of 1027.8m ounces.  At last year’s average silver price of $17.12, that was worth just $17.6b.  That’s a rounding error in the financial markets, a mega-cap stock like Apple can gain or lose that much market cap in a single day!

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