The Truth About The Silver Squeeze

The basis signal takes into account all factors: stacking, ETFs, futures, jewelry demand, etc. It cannot be faked. There is no way to paint this tape (and it is not a form of technical analysis). The basis and cobasis are actionable spreads in the markets, that arbitragers are either taking or declining, as the case may be.

There is one interesting anomaly. Consider this chart of the term structure of the silver futures market. It is a map of the bases and cobases of the near, next, and several contracts after that, all plotted on one graph.

Silver Term Structure Feb 2020

This graph is (just about) normal. It shows the term structure as of Feb 21, 2020. Just before the covid panic hit. The basis rises as you go to farther and farther contract months, and the cobasis falls.

The next one shows March 27, less than a month later. But it’s after the lockdown began.

Silver Term Structure March 2020

Notice the upward slope of the cobasis. That is, the annualized spread to decarry silver is lower, for farther-out contract months than for near. This is opposite to the Feb 21 graph. The farthest contracts did not move. The cobasis still sits a bit below -2%. But the near-month contracts are totally different.

It’s as if someone were buying futures massively. Futures activity tends to be concentrated in the near and next months. Buying pushes up the price. We see a higher basis (which is future price – spot price) and a lower cobasis (spot – future) as a result.

The last graph shows April 20, 2021.

Silver Term Structure April 2021

The farther-out contracts seem to want to get back to normal. But the near months still display that same anomaly which began right after covid.

We emphasize that this is an anomaly of greater abundance for near contracts. And if you look closely at this graph compared to a year ago, the abundance for the long-dated contracts is a bit lower than it was back then, though it’s hardly a great shortage.

We will be the first up on the rooftops, bellowing when there is a real shortage of the monetary metals to the markets. As our good friend, Aragorn would say, ”today is not that day.”

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Disclaimer: The content in this article is provided as general information and for educational purposes only and should not be taken as investment advice. We do not guarantee the accuracy ...

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