Silver Squeeze 2.0: Assessing Silver’s Potential Technical Breakout

Silver is once again in the spotlight, having gained more than 40% over the past year, currently trading above $34 an ounce. This renewed interest has sparked a grassroots movement known as “Silver Squeeze 2.0,” which is promoting a collective purchase of physical silver on March 31. The campaign has gained traction across various social media platforms, with proponents asserting the existence of a manipulated paper market. This situation is reminiscent of the Reddit-fueled silver rally of 2021, yet this time, investors are noting tighter supply metrics, elevated lease rates, and an overheated paper-to-physical silver ratio as indicators that the conditions may be different this go-around.

Understanding Silver’s Unique Market Dynamics

According to Peter Krauth, author of The Great Silver Bull and editor of Silver Stock Investor, there are currently around 223 million ounces of silver that are net short. This represents about 25% of the annual mine supply. Furthermore, the ratio of paper silver to physical silver has skyrocketed to around 378 to 1, a stark contrast to other metals in the futures market.

Retail Uprising vs. Temporary Hype

During the initial Silver Squeeze in 2021, retail investors rallied through the Reddit community WallStreetBets, resulting in a ninefold surge in the SLV ETF volumes and a notable price rise of silver from $25 to $29.50 in a matter of days. Krauth reflected, “The average silver stock was up about 30 to 40% in just three days,” with moves in the silver market being specific and somewhat detached from gold pricing trends at that time.

However, the momentum eventually waned due to insufficient sustained buying and a lack of fundamental demand. Krauth believes this current rally may also fizzle unless there is a significant shift in fundamentals, particularly from industrial buyers. “Unless you see a fundamental bump in demand, especially from industrial buyers, I think the rally might not last,” he cautioned. Nonetheless, Krauth pointed out that there is currently less silver available for investment than there was a decade ago, which could contribute to a more sustained price squeeze.

Supply Pressures Mounting

Over the past four years, silver has faced global supply deficits averaging 200 million ounces annually, according to Metals Focus. Notably, this shortfall has not been countered by a boost in new mine production; instead, it has been compensated by drawing down inventories from major exchange sources, such as the London Bullion Market Association (LBMA) and the COMEX. Krauth indicated that the LBMA’s inventories have shrunk by 40 to 50% in recent years, with significant quantities of silver moving into private vaults in the U.S., driven partly by speculation surrounding potential U.S. tariffs on imported metals.

Krauth remarked on the prospect of tariffs, noting, “If you’re importing silver into the U.S., you could have to pay a 25% tariff. That’s a real concern.” The looming April 2 announcement regarding trade measures could further exacerbate the already tight market conditions.

Predicting Silver’s Price Movements

Despite remaining below its all-time high of $50 achieved in 1980, Krauth is optimistic about silver’s future price trajectory. He believes that we could witness silver reaching $40 later this year, with the potential to break through $50 next year. “Some experts are calling this the biggest technical breakout setup in modern history,” he added. If silver breaks above the $50 threshold decisively, Krauth suggests that it could surge towards $70, $80, or even $100 in a short timeframe.

Retail premiums for silver remain high, although there has been some moderation in demand at bullion dealers. Conversely, institutional interest in silver is on the rise. As noted by Krauth, “Some dealers are actually going to Costco to get their silver.” This shift in distribution channels indicates an underlying movement towards silver investment, despite fluctuations in retail demand.

Investment Considerations and Future Outlook

For potential investors, Krauth advises, “If someone doesn’t own silver, at least buy a little now. If you want a larger allocation, do it in tranches. Maybe buy some now, and if there’s a dip, add more.” March 31 may prove to be a pivotal day in the silver narrative, but regardless of the outcome, the fundamental supply-demand dynamics seem poised to propel prices higher.

Krauth concludes, “This isn’t just about retail investors anymore. It’s about real tightness in the market.” As Silver Squeeze 2.0 unfolds, maintaining a close watch on market conditions, investor sentiment, and supply-demand metrics will be critical for making informed investment decisions in the silver market.