If you’re looking to get rich in precious metals, this might be the most important message you’ll ever read. Because today, I’m going to show you why silver prices could soon soar through the roof. If you want to get in on this opportunity, then you have to act fast.
Let me explain.
If you take a look at what has been going on in the silver futures market, you’ll see that the grey metal is being oversold.
At the beginning of this year, open interest in silver futures was around 150,000 contracts. Open interest refers to the number of futures contracts that are not closed or delivered. By July 28th, open interest in silver futures increased to around 190,000. That was a 26.7% increase in a less than seven months!
And what happened to silver prices? They slipped more than six percent. When open interest increases by a lot while price declines, it suggests that a significant amount of short positions have been taken.
These short-sellers of silver would eventually have to cover their positions, which would contribute to a big squeeze in silver prices. Moreover, as prices increase, more short positions would be closed as margin calls start to come in.
Silver Spot Price Lower Than Futures Price?
Right now, spot silver is trading at $14.79 per ounce. Silver futures due for delivery in August are trading at $14.72, and the September contracts are trading at $14.74. What we have here is a spot price lower than the futures price.
Here’s a great arbitrage opportunity if you own silver: sell you metal at the spot market, and buy the futures contracts to get the metal back a few weeks later. Not only would you be able to profit, doing so also saves you all the storage costs during this period.
If investors were exploiting this arbitrage opportunity, the spot price would go down and the near-term futures price would go up. And very soon, there would be no arbitrage opportunity remaining. But we are not seeing that. In fact, the grey metal’s spot price has been higher than the near-term futures price for some time now. Why? Counterparty risk.
That is, investors are not sure if they can get their metal back on the futures market. Why would they doubt whether the sellers of futures contracts can deliver the metal? Because of the tight conditions in the physical market where demand outweighs supply.
U.S. Mint: Silver Coins Sold Out
Earlier this month, the U.S. Mint said that the popular 2015 American Eagle silver bullion coins were sold out due to “significant” demand. As the price of silver declines, demand for the metal increased. In June, silver coin sales were 4.84 million ounces, more than double the amount sold in May. (Source: Reuters, last accessed July 29, 2015.)
Mind you, investors are not the only buyers of the grey metal. Silver is widely used in a large number of industries due to its excellent electric conductivity. As industries such as solar energy and electronics grow, demand for silver would also grow.
There you have it. The grey metal is being oversold today, but a big squeeze is coming.