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If Silver Is Running Out, Why Does It Keep Dumping? (And can it recover?) — Transcript

by Nick Bencino Finance · 3,801 words · 538 segments · language en · Watch on YouTube

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0:00If silver is running out, why does it
0:02keep dumping? Now, the silver shortage
0:04is real. For 5 years in a row, the world
0:06has used way more silver than it
0:08produces. So, it it should be going up,
0:11right? But it isn't. It went down a lot
0:14recently. So, if you hold silver or
0:15you're thinking about getting some
0:17silver, you're probably wondering what
0:18the hell is going on, which is what
0:20we're going to talk about today. By the
0:21end of this video, I'm going to show you
0:23why silver keeps dumping even with a
0:25real shortage and what it means for you.
0:28If you don't know me, my name's Nick.
0:29I've been a professional investor,
0:30unprofessional trader for 25 years. I'm
0:32not a financial adviser, and this is not
0:33an inducement to buy or sell any assets.
0:36And as always, do not take financial
0:37advice from some random dude on YouTube.
0:39Now, let's crack into it. Right? So, to
0:42understand why silver's dumping right
0:44now, I need to take you back to 2022
0:47because what happened then is almost
0:49exactly what's happening right now. That
0:51year, people bought more silver than
0:53ever before. Every major kind of silver
0:56demand hit record highs. Jewelry was up
0:5929%. Silver wear was up 80%. Coins and
1:02bars up 22%. It It was a crazy year for
1:05silver. And the world used about 250
1:08million ounces more silver than it
1:09produced, which is a lot of silver. It's
1:12250 million bloody ounces. So, it's more
1:15than six times the size of last year's
1:17shortage, by the way. It's it was a huge
1:19shortage in 2022. Then, at the same
1:22time, Russia had just invaded Ukraine,
1:25which had three effects. Now, I need you
1:27to remember these because they're going
1:28to be very, very important. First, oil
1:30and gas went through the roof. Second,
1:33by June, inflation in America hit 9.1%,
1:36the highest that they had seen in 40
1:38years. And the third thing was the Fed,
1:41America's central bank. They took
1:43interest rates from almost zero to over
1:454% in 9 months. So, high oil prices,
1:48high inflation, and interest rate hikes.
1:50What does that sound like? Does that
1:52kind of sound like now? Yeah, because it
1:54is. Spoiler alert. Uh, but that is the
1:57perfect recipe for killing gold and
1:59silver. So, silver fell, and I mean it
2:01fell hard, from $26 in March to $18 by
2:06the start of September, down more than
2:0830% in 6 months. When you're dealing
2:10with numbers that small, it doesn't
2:12sound as impactful, but it it was 30% in
2:146 months. It's a lot. But how does
2:16silver fall more than 30% in 6 months
2:19when people are buying more of it than
2:21ever? Well, for many of the same reasons
2:24it's happening right now. Although this
2:27time there are a few other reasons piled
2:29on top, which is why it's going down
2:31even further. So, let's break it down.
2:33So, a shortage doesn't mean that silver
2:35is just gone, that it's disappearing. It
2:38means that the world uses a bit more of
2:40it each year than it mines and recycles.
2:43And the gap gets filled from silver
2:44that's already being dug up and sitting
2:45in vaults, which there is a lot of that,
2:47by the way. Think of it as a like a
2:50bathtub where the plug hole drains just
2:52a bit faster than the tap is filling it.
2:54So the water level is dropping
2:56obviously, but it doesn't drop as fast
2:58as you would imagine because the tap is
3:00filling it up. So it's almost at
3:02equilibrium, but not quite. It's just
3:03going down a little slowly. So that's
3:05the point. A shortage moves slowly. It
3:08shows up over years, whereas the price
3:11of silver moves every second. So what's
3:13actually pushing the price around every
3:15second? Well, there are four main
3:17reasons that silver is going down even
3:19with supply running out. Reason number
3:21one is the speculators, the gamblers,
3:24let's call them. The price of silver
3:26isn't simply set by the people and the
3:28companies buying silver like you know
3:30your solar panel companies or some
3:32people making silverware. Uh much of it
3:35gets set on Comx, the exchange where
3:37silver futures are traded. And on Comx,
3:39you don't trade real silver, you trade
3:41paper. But you know what? Let's not talk
3:44about Comx yet. We'll go to that in the
3:47second reason. Let's talk about the
3:48speculators, the gamblers. See, they are
3:50not trading real silver. They are
3:52trading paper futures contracts, which
3:54are basically bets on the price of
3:56silver. So, right now, if you put down
3:58$26,000,
4:00it lets you control 5,000 ounces of
4:02silver, which is worth about $260,000
4:04give or take. And this system allows for
4:06a lot of speculation, a lot of gambling.
4:09Now, to be clear, there are some
4:10legitimate uses for futures contracts,
4:12so I do think they should exist in some
4:14form. I just think they need more
4:16regulation because on Comx more than 50%
4:19of volume comes from funds and traders
4:22betting on the price of silver. And of
4:25course, Comx loves this because they get
4:27to collect a fee from every single
4:29trade, no matter if it's a legitimate
4:31one or a gambling trade. And to be fair,
4:34look, when I say legitimate or gambling,
4:36uh gambling is a legitimate form of
4:38trading. It's completely legal. But my
4:41point is, it's not a business using
4:43futures contracts for their proper
4:45purpose. It's people with speculators.
4:47And the speculators are the people
4:48killing silver. Short-term gamblers
4:51betting with borrowed money. They call
4:53silver's first big crash this year.
4:55These are the people who got in not
4:58because they like silver or they want to
5:00hold longterm. It's because they want to
5:02make quick money. And you're going to be
5:04asking, what's Comx's role in all this?
5:05Because Comix are the real culprits. But
5:07we'll get to them in a second. And look,
5:09when you want quick money, you use
5:11leverage, borrowed money. For every
5:13$1,000 that one of these speculators
5:15puts in, they control $10,000 worth of
5:18silver. This is called leverage. That
5:20$1,000, it's basically a deposit you put
5:23down to control that amount of silver.
5:25So, if silver goes up 10%, your $10,000
5:28becomes $11,000. You've made $1,000.
5:32When silver went up 10%, you put in
5:341,000, it went up 10% and you made
5:361,000. You're a bloody genius. you
5:37doubled your money. But if silver falls
5:4010%, your 10,000 becomes $9,000 and
5:43you've lost $1,000 right away and that's
5:46your whole deposit gone. But the thing
5:48is, you never really get that far
5:51because your broker won't let you. This
5:53is because if silver falls too fast, you
5:56would eat into the money that they've
5:57lent you, and they can't have that. So,
5:59they force you to keep a buffer in your
6:01account, a minimum, and that minimum is
6:04pretty much most of your deposit on a
6:06$1,000 deposit, it's about $900. So, if
6:09that's all you've got in there, silver
6:12has to only fall 1% before you get a
6:14margin call. What is a margin call? That
6:16is when your broker gets on the phone
6:18and says, "Put more cash in or we're
6:20going to sell your silver to protect our
6:22money." And they never call you on a
6:24good day. It's it's always when the
6:25markets are going to crap. So, and like
6:28I said, that phone call is called a
6:29margin call. And if you can't find the
6:31cash, you know, when the broker gets on
6:32the phone and gives you a call, then
6:34your position is sold, but your selling
6:37pushes the price of silver down. And
6:40it's not just your selling. I mean, when
6:42thousands of these are happening at
6:44once, which then triggers the next batch
6:47of people's calls and then the next and
6:49so on. That's called a leverage cascade
6:51or a margin cascade. People have
6:53different names for it, but it's the
6:54same bloody thing. And it's a nasty
6:55domino effect essentially. And with that
6:57much leverage, when they get in trouble
7:00and have to sell, you end up getting
7:02billions of dollars of selling volume.
7:04You know, even maybe a few thousand
7:06people equal billions because everything
7:08is multiplied by leverage. By the way,
7:11it's ComX that sets the deposit behind
7:13that margin call. So, they are really to
7:15blame. And we'll get to them shortly.
7:16Now, you might be thinking, uh, what
7:18about all the people buying coins and
7:20jewelry? They are buying but bit by bit.
7:22You know, one family buys a necklace,
7:24another one buys a spoon, a collector
7:26buys a coin. Even solar panel, solar
7:28panel makers buy little and often.
7:31Forced sellers dump the lot in an
7:34afternoon desperately and in a rush.
7:36That's your difference. So, when you see
7:38the price of silver dropping fast, the
7:40shortage hasn't gone anywhere. There is
7:42still a a silver shortage, but it means
7:45somebody had to sell. And more often
7:46than not, it's selling paper silver. And
7:48that's what happened this year. but at a
7:50massive, massive scale. Silver nearly
7:52quadrupled in 12 months to a record of
7:54over $121 an ounce by the 29th of
7:57January. And plenty of the buyers near
8:00the top were speculators using borrow
8:02money. Now, this created an opportunity
8:04for Comx to come in and force those
8:06gamblers out, which crushed the price of
8:08silver. So, the next day, silver futures
8:10fell 31%, their worst day since March of
8:131980. margin calls forced selling, then
8:16more margin calls forced more selling,
8:18then more margin calls forced more
8:19selling, and so on and so forth. By May,
8:21the number of open bets on silver
8:23futures was down 38%. So 38% of people
8:26got a margin call or just closed out
8:28their trades on their own. I did a whole
8:30video on the collapse a few days ago. Go
8:31check it out. But that's reason number
8:33one, speculation and gambling, which in
8:35my opinion should not be allowed, by the
8:37way. It should be completely illegal.
8:38You keep futures contracts for their
8:40legitimate use cases, but do not allow
8:42gambling. But of course, they're going
8:43to allow it because Comx makes a lot of
8:46money from it. By the way, if you're
8:47finding this video useful, hit the like
8:49and subscribe button. It really helps
8:50the channel out. Also, hit the hype
8:52button. It's a new thing that YouTube is
8:53doing and it helps out the video a lot.
8:54But now, let's talk about reason two,
8:56which is COMX itself, or some people
8:58like to call them ConX or Crime. I love
9:00those names, ConX or Crimex. But yeah,
9:03reason number two is Comx, because
9:05ultimately, in my opinion, they are to
9:07blame. Comx lets speculators gamble and
9:11then punishes them when price goes up
9:13too much. Why? Because ComX is greedy,
9:16if you ask me. Allegedly. Allegedly
9:18greedy. Like I said, it makes money on
9:20every single trade. Its owner, CME
9:23Group, made over $1 billion in profit in
9:25just 3 months. And 79% of its money came
9:28from fees on trades. So, it wants as
9:31much gambling as possible on its
9:32platform. Allegedly. This year it
9:34launched a smaller silver contract
9:36because in its own words, silver is
9:38increasingly appealing to retail
9:40traders. Retail traders are, you know,
9:42people like you and me. We're retail.
9:43I'm not really a trader anymore, but
9:45people like you and me. Uh, and now you
9:48can also bet 24/7 on Comx, even on
9:50weekends. Now, let me tell you exactly
9:53what that means. Before the big silver
9:55bull run, it cost about $15,000 to
9:58control one silver contract, which was
10:00at the time worth $150,000.
10:03So $15,000 for one contract excluded a
10:06lot of retail traders because they
10:07simply couldn't afford it. They couldn't
10:09afford to gamble on COMX. But then Comx
10:12introduces smaller and smaller
10:14contracts. Now all you need is about
10:16$500 to control 100 ounces of silver, a
10:19100 contract. So they've opened the door
10:21to even more gamblers. And that's how
10:23you end up with way more paper silver
10:25than real silver. For every ounce of
10:28silver Comx has ready to hand over,
10:30there are more than 5 ounces of bets of
10:32paper silver floating around. Because
10:35think about it like this. I sell you a
10:37contract where you pay $1,000, but you
10:39control $10,000 worth of silver. Now, I
10:41need to have $10,000 worth of silver to
10:44give you, don't I? Because I'm the one
10:46backing you. Not really, because they
10:48are confident that you're never actually
10:50going to collect that real silver on
10:52your futures contract. So they can sell
10:55silver that doesn't exist. Which is
10:56exactly why ComX doesn't like silver
10:59prices getting too high because all of
11:01that betting leaves Comx on the hook. If
11:03prices get really high, people are going
11:05to want to collect their silver. They
11:06they're going to want to hold the bars
11:07in their hand, but Comx doesn't have all
11:09the silver to give them. So Comx doesn't
11:11hold enough silver in its vaults to
11:13cover all of the bets. That's pretty
11:15much the thing they fear. So when silver
11:18flies up, Comx gets super super nervous
11:20and it punishes speculators. It does
11:22that by raising the deposit amount. So,
11:24remember how I said they sell you a
11:26contract where $1,000 controls $10,000
11:28worth of silver? Now, they're like, "If
11:30you want to control $10,000 worth of
11:31silver, you need to give us $3,000. If
11:33you don't give us an extra $2,000 by
11:36this time tomorrow, we're forcibly
11:37closing your position." In my opinion,
11:39they force people to sell because they
11:42know they would never be able to deliver
11:44them real sutures
11:46contract comes due. And they've done
11:48this before. In 1980, they capped how
11:50much silver anyone could hold. And then
11:53when they got desperate enough, they
11:54stopped allowing people to buy futures
11:56contracts and only let them sell.
11:58Obviously, that is going to crush the
12:00price of silver because you're not
12:02letting people buy. You're only letting
12:03them sell, which is insane that they
12:06have the power to do that. In 2011, they
12:08raised the deposit requirement five
12:10times in a row in under two weeks. And
12:12obviously in 2025 and 2026 they raised
12:15deposits again and again which led to
12:17silver getting crushed for now. So
12:20that's reasons one and two. There's
12:22plenty of demand for real silver but
12:24there's been a lot of selling pressure
12:26from paper silver. And Comx is the is
12:29one of the main places that silver
12:31prices get set. So even though that
12:33silver is only on paper, it moves the
12:35price of the real thing. when you buy a
12:38silver coin, the dealer prices it off of
12:40that number and then adds a premium onto
12:42it. And I know it sounds crazy, but
12:43that's just how it works. Uh, okay. Now,
12:47look, those were two long reasons, but
12:50uh that's reason number one and two.
12:51Now, let's talk about reasons number
12:53three and four. They're a bit shorter.
12:55Reason number three is interest rates.
12:57So, remember those three things from
12:582022. High oil prices, high inflation,
13:01and and interest rate hikes. Uh, they
13:03are all back. Oil's over $100 a barrel.
13:06Inflation in America is 3.7% and
13:08interest rates are climbing again. And
13:09that is a problem for gold and silver.
13:11It's not as big a problem as people make
13:13it out to be. But it is a problem. It
13:16does put pressure on it. And in an
13:18environment where pressure from ComX and
13:21from gamblers getting margin cord is
13:24already happening. This just piles on
13:26top of that and makes it worse. But why
13:28does it add pressure? Because silver
13:30pays you nothing. Nothing interests.
13:34When cash in the bank suddenly pays you
13:354%, then a lump of metal that pays you
13:37nothing gets a lot less popular, a lot
13:39less appealing for people. Now look,
13:41banks don't pay you 4% right now, but US
13:43government bonds certainly do. That's
13:45when you lend money to the US government
13:47and it pays you interest. And some
13:49people would rather hold bonds than
13:51metals when bonds are paying them a lot
13:53of money just to be held. Also, when
13:56interest rates go up, the dollar usually
13:57gets stronger, too. Silver is priced in
13:59dollars, so a stronger dollar just tends
14:01to push silver and gold down. And this
14:03year, bond yields have been climbing
14:05pretty much all year. This is the
14:06interest that you get paid for for
14:08holding the US government bonds. So, the
14:1010-year bond went from 4.3% at Silver's
14:13top to 5.3% in early October, the
14:16highest since 2002. They've come down a
14:18little bit recently, but they're still
14:20pretty high. Uh, and that's the rate
14:22that silver has to compete with. Think
14:24about it like this. A safe US government
14:26bond pays you about 5% a year. Silver
14:29pays you nothing. Zero. The higher that
14:32number goes, the higher that number, the
14:335% if it turns into 6%, the 7%, the
14:36higher it goes, the more people choose
14:38to hold bonds instead of metals. Now,
14:40obviously, silver can make you a lot
14:42more than 5% per year. But there's
14:45always a risk that silver goes down,
14:47like this year. Whereas with a bond,
14:49it's almost a guaranteed 5% return. And
14:52the Fed isn't helping either. In
14:54September, it raised interest rates for
14:55the first time since 2023. On Wednesday,
14:58it held them, but the vote was 10 to2.
15:00So two of the members wanted to hike
15:02interest rates and in December they will
15:04almost certainly hike rates. That's uh
15:06the word on the street let's say. So the
15:09so first borrowed money got flushed out
15:11and then interest rates just kept
15:13climbing since January. Silver's had
15:15eight falls of 10% or more and every
15:18bounce has topped out lower than the
15:20previous one. So we're obviously in a
15:21pretty brutal bare market and now silver
15:23is below $50. So, if you've got silver
15:26coins uh or you're in a silver fund or
15:28mining shares in your pension, whatever,
15:31this is where your money is sitting
15:32right now. In the same kind of squeeze
15:34as 2022, only way bigger. And reason
15:37number four, we need to talk about
15:38reason number four. This is called
15:40demand destruction. Now, fair warning,
15:42this bit is going to get a little
15:43depressing for silver holders, but there
15:45is a massive silver line. There's a
15:48massive silver lining, no pun intended.
15:50When something gets too expensive,
15:52people buy less of it and find ways to
15:54use less of it, and that pushes the
15:56price back down. The big one for silver
15:58is solar. Solar panels are the biggest
16:00industrial user of silver. At the start
16:02of last year, silver was about 10% of
16:05the cost of making a solar cell. A
16:07silver soared that went up to over 20%.
16:10So, put yourself in the factory owner's
16:12shoes for a second. One of your main
16:14ingredients has nearly tripled in price
16:15in a year. You can either charge more
16:18for your panels or find a way to use
16:20less of it. And it's always hard to
16:22charge more because you lose customers.
16:24So, they couldn't really charge more.
16:25Panel prices only went up about 7%. So,
16:28the engineers just got to work. They
16:31started using copper coated silver
16:33instead of pure silver and printing
16:34thinner lines of it on each cell, stuff
16:37like that. By the end of last year,
16:39factories were mass- prodducing a silver
16:41paste that's only about 10% silver. The
16:44rest is is copper. So, they're starting
16:46to replace silver with copper. Last
16:47year, they cut silver in each cell by
16:50more than 15%. This year, they're
16:52expected to cut it another 15 to 20%.
16:54And fewer panels are going in each year.
16:57So, fewer panels are being sold, too.
16:59China, the biggest market, and sold 61%
17:01fewer panels from January to July uh
17:04than the year before. So, solar makers
17:07are expected to use about 19% less
17:09silver this year, which is demand
17:11destruction. It just is. And it's not
17:13just solar, by the way. Jewelry buying
17:15fell 8% last year and silver were 21%
17:17mostly from India where record prices
17:19just priced out a lot of people right
17:22now. Look, none of this means silver is
17:24broken. It it just it's just what
17:26happens when prices get high. The price
17:29gets too high, people use less and
17:31prices come down. And silver isn't going
17:33anywhere in solar. I I it's just going
17:35to be used more efficiently. The silver
17:37industry's own yearly report says that
17:39it will stay essential in the best
17:41panels. And demand destruction works the
17:43other way, too. So, when silver got
17:45cheap in 2022, the buyers came piling
17:48back in. That's those record years for
17:50jewelry, silverware, and coins that I I
17:52told you about at the start. And it's
17:54already starting, by the way. In China,
17:56buyers stepped up their buying uh as
17:58prices started falling last week. And
18:00silver coins and bars are expected to be
18:02up 18% this year, as in uh up as in more
18:05buying. So, that is the silver lining.
18:08Demand destruction is reducing demand,
18:10but once it does its job, it will
18:12increase demand because prices get
18:14cheaper. And also an extra bit of silver
18:16lining, demand destruction is having an
18:18effect, but uh overall demand is still
18:20fairly strong, which is good because
18:22we're still operating with a silver
18:25shortage. Uh we're still using more
18:27silver than we're mining. Okay, so look,
18:29I've thrown a lot of information at you.
18:30So let's summarize all of this. If
18:32silver's running out, why does it keep
18:34dumping? The initial dump was caused by
18:36Comx increasing margin on all the
18:38gamblers trading futures that forced
18:40massive amounts of paper silver to be
18:42sold which crushed the price of silver.
18:45Those are reasons number one and two.
18:47Then rising interest rates along with
18:49demand destruction have kept silver down
18:51and ground it down even further. But
18:53much like 2022, as long as demand
18:55doesn't deteriorate completely, and
18:57there's no sign of that yet, and as long
18:59as there are still buyers, it should
19:01recover eventually. By the way, if you
19:02want me to do a full video with deep
19:04analysis on whether silver has bottomed
19:06or when it might bottom, let me know and
19:08I'll do it for you guys. Other than
19:10that, if you found this video useful,
19:11hit the like and subscribe button, and
19:13I'll see you in the next

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