Silver Shorts Get Squeezed Hard… What’s Next?

The extraordinary run up in precious metals markets continues as silver makes some truly epic percentage gains while gold pushes further into record territory.

As of Friday morning, gold prices had pulled back but are still up 3.1% for the week to trade at $2,044 per ounce. Gold is advancing now for the ninth consecutive week, with the biggest pops occurring over the past three.

Silver, meanwhile, is going nearly vertical, today’s pullback to $28 notwithstanding. This week alone, the white-hot metal shot up a staggering 18% through Thursday’s trading to close at over $29 an ounce.

So, what’s behind the big moves in precious metals? A number of factors are combining to create a sort of perfect storm.

First and perhaps foremost, the Federal Reserve is embarking on an unprecedented campaign of currency creation with the explicit goal of raising the inflation rate. Jerome Powell and company at the Fed now want to see consumer price levels rise at a rate of greater than 2% for an indefinite period.

At the same time, they are holding their benchmark short-term rate at zero and pursuing yield curve control to suppress longer-term rates. Earlier this week the 10-year Treasury yield fell to a record low of 0.52%.

U.S. dollar assets are simply becoming less and less attractive. The U.S. Dollar Index has been sliding as both international and domestic investors seek alternatives.

The dramatic ascent of precious metals markets reflects what could be just the start of a longer-term decline and fall in the Federal Reserve Note’s value and status.

The gold and silver markets are tiny compared to global currency and bond markets. It only takes a small proportion of investors and institutional asset managers allocating some new capital to metals to drive prices significantly higher.

There just isn’t that much gold and silver to go around. On the COMEX futures exchange, there has been something of a run on the bank as large numbers of paper contract holders have been demanding physical delivery. Sellers dread having to fulfill that obligation to buyers, especially in an environment of extreme price pressure to the upside and abnormally high premiums on large, investment-grade bars.

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