![]() ![]() They take a loss on the paper ‘short’ position but have a profit on the physical ‘long’ to match. So these positions can’t be ‘squeezed’ out if the spot price moves higher. So not all, but a large number of short positions listed by ‘commercials’ are to hedge an equal long position of physical metal. ![]() Likewise, when bullion banks are seen to be carrying a large silver short position, it doesn’t necessarily mean they are speculating on lower prices, there could be long physical position to match, and they are simply hedging their exposure. For example, when a refinery buys actual physical silver from a mine, in order to hedge their price risk (between the time of taking it in, refining it, and on-selling it) the refinery will enter a short position to the same number of ounces using a paper derivative or futures contract etc. One is to speculate on the price moving lower, but the other (which most may not have thought about) is to hedge physical inventory. But wait for the kicker in all of this, as there is some merit to the idea of a ‘physical squeeze’.įirst, when it comes to physical commodities there are two main reasons why an institution or traders may hold a short position. The Reddit crew have courage to attempt it, but there are a few reasons as to why this would likely fail. This leads to more buy orders on the bid as a rush for the exit occurs, and the share price sky rockets as a result.īut when it comes to trying to create a squeeze in the silver market, this is a totally different ballgame. Those caught short saw their losses building and building and they eventually have to give up and buy the stock back to close the position and take a loss. So, this was ripe for a short squeeze scenario if enough people got together and bought shares and call options all at the same time. What we saw recently in Game Stock shares is that short interest reached a ridiculous level of 148% of shares available. Your loss from a short position is technically unlimited, so traders would usually have stop-losses where they eventually throw the towel in and are forced to buy back the asset at a higher price, to minimize their losses. A squeeze can occur if too many traders are all on the one side of the ship, betting on the price moving lower, but they get caught out when the price rises unexpectedly, and the loss on their trade starts building. A short squeeze can occur when an asset class has a very high level of short interest, with traders, institutions or hedge funds selling an asset they’ve borrowed with the intention of buying it back later at a lower price and making a profit. So, is there any merit to the ‘silver short squeeze’ story? And how long could one expect this spike in demand to last?įirstly, lets break down the idea of a short squeeze. This was clearly a global event that had a much larger reach than most expected. Here domestically at Guardian Gold we saw a big spike in online account openings and silver volumes, and Perth Mint have had to pause silver cast bar orders to catch up with demand. A complete mania which lasted a few days before the market stopped and had a breather, only to see prices pull back over 10% from the highs. Large bullion dealers in the US offering weekend trading were caught out and had to hedge their positions on the Monday morning open, which sent silver spot spiking higher. Silver miners shot up, ETFs saw inflows, and physical bullion dealers saw a massive spike in bullion orders over the weekend. Sure enough, that was enough to get the whole world scrambling to buy anything silver related. Well at least that was the narrative pushed by some members. Some participants of the Reddit group Wall Street Bets (mentioned in last week’s update) turned their eye towards the silver market as a few posts went viral about the potential to squeeze silver short positions into covering. By now, many readers would have come across the “Silver Short Squeeze” trend on social media getting around at the moment as silver took a wild ride from $33 AUD an ounce to $40, before pulling back to $35 all within a few days. ![]()
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