Typically, when prices drop sharply, it is due to an oversupply. However, the current Silver market$XAG is experiencing a terrible paradox.

Below is the overall picture:

🔷 The mystery of 58 million Ounces and the extreme material thirst

The evaporation of liquidity:

  • In the past 2.5 months, ETF fund investors have sold off up to 58 million ounces of Silver.

  • Theoretically, this huge volume should have helped the market rebalance, supplementing the floating supply in London or the warehouse receipts of COMEX/SHFE.

  • However, the market has not cooled down at all. In fact, the pledged Silver at COMEX and SHFE has decreased by 67 million ounces during the same period! The amount of Silver released has been completely "swallowed" by some forces.

Rental rates explode:

  • In London, the rental rate for 1-month Silver in 2023 and 2024 is only around the 0% mark

  • But currently, the chart has recorded spikes of up to 4.5%. Any number above 1% signals extreme tension.

  • This shows that the big players are in severe shortage of physical Silver to the point of borrowing from each other at exorbitant prices to make timely deliveries.

Extreme short covering:

  • The 1-year Silver Swap Index minus US interest rates is sinking deep below 0.

  • In a normal market, future buyers must pay additional storage and insurance fees.

  • But right now, the market is screaming: "I need physical Silver right now, and I'm willing to pay a higher price to get it immediately instead of waiting another year!"

🔶 Mechanical price crash: The purging of the "leverage Cowboys"

If physical Silver is scarce, why did the price of Silver crash from $121 to $64? The report points out an extremely clear reason: This is a technical liquidation, not due to a macroeconomic foundation change.

The 19x leverage culprit:

  • On the COMEX exchange, many speculators known as "reckless cowboys" have used insane leverage: Only putting in 5 cents of their own capital to borrow 95 cents, equivalent to a leverage of 19 times.

Death loop:

  • When the market is highly volatile, exchanges are forced to increase margin requirements to reduce systemic risk.

  • This ratio has been forced to increase continuously from 5% to 8%, 11%, 15%, and now 18%. High-leverage players who couldn't bear it have been margin called and forcibly liquidated.

  • Automatic sell orders crashing down on the market 👉 The price drops further 👉 More people get liquidated. This is a purely mechanical collapse chain!

Evidence from Open Contracts:

  • The OI chart at both COMEX and Shanghai is diving headfirst downwards

  • At COMEX, the number of contracts has fallen from a peak of 176,000 when Silver was priced at $50 down to just 137,000.

  • This is an extremely Bullish signal, as it confirms that the gamblers have been "swept out" of the market. Now, the Silver market has been transferred to much stronger "diamond hands."

🔷 Establishing a new structural bottom at $70
There will be no return of Silver to the $50 or $60 mark anymore. The market structure has completely changed:

  • Toxic leverage has been removed, no longer any factors causing mechanical sell-offs.

  • Inventories at COMEX and Shanghai continue to probe new bottoms.

  • In terms of geopolitics, China has tightened the export permits for Silver since January 1, and the US has officially added Silver to its list of essential strategic minerals since November.

The price range around $70 is being consolidated to become a very solid new price floor for the next cycle.

💡 Investment strategy from experts and signs of reversal
The author of the report has made an extremely wise move: Reducing the allocation of physical Silver and increasing the purchase of shares in Silver mining companies.

The reason is that mining stocks are currently undervalued because the stock market still fears that Silver prices will crash back to $50 like in the 1980s or 2011. When the crowd realizes $70 is the new hard bottom, Silver mining stocks will experience an explosive growth phase.

However, nothing is absolute. We need to closely monitor the cancellation signals below to lock in profits:

  • The rental rate in London has dropped back to the 0% level.

  • The price curve from Backwardation (Short covering) has reversed to Contango.

  • Inventories at COMEX and Shanghai have started to rise sharply again.

  • Long-term Silver supply may increase as a byproduct when Copper mines ramp up production to meet global demand.

What do you think about this fiery macro analysis? The game has shed the inexperienced gamblers and now it's time for real money to speak! 👇

This article is for reference only and is not investment advice. Please read and consider carefully before making a decision.