Getting in at the bottom floor of a market is every investor’s dream.
But identifying the bottom floor and having the gumption to act on it is the difference between “smart money” and most investors.
In the world of professional investing, acting the “smart money” part on behalf of investors is the name of the game.
Take John LaForge, head of Wells Fargo Real Asset Strategy. In a note to clients, he writes:
“At the top of our commodity buy list are metals, especially precious metals. Silver looks to be the best buy.”
“Silver is down … and has a good fundamental backdrop … For long-term investors, accumulating silver in the $13-$14 range, looks like a ‘good deal,’ in our view,”
Over the last six months, spot silver has declined 10.6%, a drop significant enough to scare away most investors. The drop in metals is attributable to the dollar’s rise, much of which may be due to escalating trade tensions between the US and China.
But not only is the dollar showing signs of waning strength, many financial institutions like Wells Fargo forecast that such strength will fade by the end of the year--a bullish catalyst for silver and gold, as both are inversely correlated to the dollar.
Record-Level Silver Shorts Signal a Buying Opportunity
Turmoil in the emerging markets have invariably affected the dollar and metals markets. As is well known, the Turkish lira, Brazilian real, and Russian ruble among others have been getting thrashed in this environment.
Not surprisingly, investors have sought refuge in the US dollar having fled emerging markets.
What is surprising is that many of these same investors have been laying on massive shorts on gold and silver--a move that is not only odd but one that goes against common sense.
As gold and silver have been plunging against the dollar, both metals have been rising against emerging markets currencies.
Another development to pay attention to is the People’s Bank of China’s (PBOC) efforts to restrain shorts on the Yuan. Similar to the dollar, the Yuan and gold are inversely correlated.
And although the PBOC has made it more difficult to short the Yuan, there’s an indication that part of the reason why the Yuan has been declining is that citizens and institutions have been converting their domestic currency into precious metals as both a safe-haven and a short-Yuan proxy.
Preparing for the Massive Short-Squeeze in Gold and Silver
Gold shorts are up year-to-date by 275%. This amounts to roughly 21.5 Million ounces,
Silver shorts, on the other hand, are up by 84%, amounting to 480 Million ounces.
Between shorting gold and silver, the silver short is an exceedingly dangerous gamble for short-sellers.
If you happen to be a short or looking to go short, consider the following fundamental factors:
Only 852 million ounces were mined in 2017.
The current short position of 480 million ounces represents 56% of the total 2017 production.
Since 2017, 209 million ounces were used for jewelry, 657 million was used for industrial fabrication--already 866 million ounces--and the rest were needed for scrap.
In short, demand for silver is high, and supply is tight and short sellers may be in for a very intense and sudden short-covering rally.
And this is what financial institutions like Wells Fargo and contrarian investors are currently eyeing.
Investor Takeaway: for purely fundamental reasons, of all precious metals, silver is the strongest investment play. Not only are gold and silver are at the bottom levels of what can be considered economically reasonable prices--what every investor wishes they had done with every investment--but the shorts on silver are excessive and run counter to the sound fundamentals of supply and demand.
The ideal time to buy silver is now…when the herd is going short, and the “smart money”--financial institutions and contrarian investors (who typically are the ones who “make” money in the markets) are looking to buy.