Losses for silver short-sellers near infinite

The current setup is extremely bullish for silver price, according to Sprott Asset Management. Whatever froth and excess was present in the paper markets has likely been shaken out in the recent sell off. Short sellers seized the opportunity to further reduce their “liabilities” by buying up contracts in early May at a 30% discount. The remaining longs do not seem willing to part with their silver at these prices. These are the strong hands with longer time horizons that are likely not overly leveraged or are willing and able to withstand substantial volatility. Moreover, it seems the “game” on the paper silver markets will soon be coming to an end, explains Sprott’s latest report.

Despite what has recently transpired in the paper silver markets, the robust demand fundamentals for silver have not changed. For confirmation of this, look into the physical silver market (i.e. the real silver market) which is providing evidence almost daily of a sustained bull market for physical silver. The US Mint recently stated that, “demand for American Silver Eagle Coins remains at unprecedented high levels.” Likewise, for the Perth Mint, the Austrian Mint, and the Royal Canadian Mint as well. The Chinese, who were net exporters of silver only four years ago, imported 300% more silver in 2010 than 2009 and such large quantities of imports are expected to continue. Last year, Indian silver imports increased nearly six-fold, and this year consumption is expected to rise nearly 43% according to the Bombay Bullion Association. In Utah, silver (along with gold, of course) will now be accepted in weight value as legal tender. According to Hugo Salinas-Price, a prominent Mexican billionaire, there is now “very strong support for the monetization of silver” in the Mexican congress. Europeans are likely to account for an increasing amount of silver purchases going forward as well. In fact, the outlook for silver fundamentals is incredibly positive.

Bearish arguments against silver could are weak. Based on the supply and demand data coming from the real, physical markets for silver, the fundamentals are only getting stronger. And yet there exists another silver market, which is not very connected to the physical realm at all. And though silver investors have for decades suffered the tyranny of a rigged paper monopoly over silver price discovery, it appears to asset managers that the tides are turning. In the age of QE to infinity, investors are being more scrupulous with their capital, and as such they are demanding physical silver in quantity. With more and more dollars flowing into the silver markets and a finite supply of physical to meet that demand, the theoretical losses for the paper silver short-sellers are near infinite.

So, who is most at risk in the silver markets: the buyers of a scarce and real asset that serves a growing multitude of purposes, or the sellers, who are short a quantity of silver, which may very well not even be obtainable at anywhere near current prices?