March 31 is “Buy Silver” Day
March 31 has become a flashpoint for silver buyers hoping to shake up the market—and possibly squeeze out the short sellers.
The Exchange Stabilization Fund (ESF) was established in 1934 to intervene in foreign exchange, credit, and gold markets. The ESF was initially funded by part of the US government’s paper gains from revaluing gold from $20.67 to $35.00 per ounce. Since that time, the US government has intervened in the gold market to try to hold down its price.
When trying to hold down gold’s price became too much for the US government to do on its own, because demand exceeded supply, it established a consortium with seven other central banks in 1961 via the London Gold Pool to continue the effort. The London Gold Pool started failing in June 1987 and totally collapsed in May 1971.
The collapse of the London Gold Pool led to then-President Nixon closing the US Treasury’s gold-exchange window on August 15, 1971. In 1974, the Commodity Exchange (COMEX) began trading gold futures contracts as another means of suppressing the price of gold (through traders selling contracts for gold that they did not physically possess—called short selling). COMEX silver contract trading also began in 1975.
The COMEX markets are overwhelmingly markets for trading paper contracts rather than for delivering physical metals. Over the past month, the daily COMEX trading volume for gold has ranged from 16 million to 34 million ounces. The COMEX trading volume over the past month has ranged from 161 million to 641 million ounces of silver. That is often the volume traded in the physical markets, where annual new gold mine output is around 100 million ounces and silver output is over 800 million ounces.
Consequently, the prices of gold and silver are more heavily influenced by the trading of paper contracts. The London Bullion Market Association (LBMA) trades even greater quantities of paper gold and silver than does the COMEX, and they are affected by physical supply and demand for the metals.
The price of gold as of Wednesday afternoon this week is up more than 46% since the end of 2023. Silver’s price is up more than 40% since the end of 2023. The price of gold has been stronger than silver over the past 15 months because of especially strong physical demand from global central banks and private Chinese citizens. Yet silver has also been strong because of rising industrial demand, particularly for industrial usage in photovoltaic products such as solar panels.
However, the dollar value of silver trading in the COMEX and LBMA markets is dwarfed by that of gold volume. Consequently, one tactic to suppress gold’s price is holding silver prices down through short-selling paper futures contracts.
Physical gold demand has been so strong over the past year that selling short gold futures contracts has become highly risky. However, it has not yet been that risky to sell silver contracts short, especially if you are JPMorgan Chase, where you have a massive physical quantity of customer silver in your vaults that you could purchase/lease to make delivery if necessary.
If only the physical market demand for silver could overcome the paper market short sellers, the spot price of silver would almost certainly take off much higher. Toward that end, there is a developing strategy for investors around the world to purchase physical silver on March 31. This day is the focus because it is the final trading day of the calendar quarter, when financial firms need to report their financial results.
Should physical silver demand on that day be so large as to force paper contract short sellers to have to buy back their positions, two effects could occur. First, the firms that are short sellers would be forced to report losses when they buy contracts to close out their positions. Second, this surge in buying would almost certainly push up the price of silver that day.
Can this strategy succeed? I’m not very optimistic that it will. Because this is a known upcoming event, the short sellers will have time to lease silver to cover any deliveries they might be forced to make. Also, if silver demand is concentrated on one single day, then there is bound to be much less demand before and after March 31. Still, one can hope that the risk of trying to suppress silver prices may discourage existing short sellers from staying in the market. If that happens, then the prospect of much higher silver prices this year becomes more likely.
Last column’s numismatic trivia question.
Last time, I asked— Which statue appears on two US coins, with neither coin design created by the sculptor who created the statue? The Minute Man is an 1874 sculpture by Daniel Chester French in the Minute Man National Historic Park in Concord, Massachusetts. The 1925 Lexington-Concord Sesquicentennial commemorative half dollar, designed by Chester Beach, depicts this statue. The reverse of the 2000 Massachusetts State Quarter, designed by Thomas D. Rodgers, also features this statue superimposed over a state map.
This week’s trivia question
Here is this week’s question. What was the model for Liberty on the US $20.00 Double Eagle designed by Augustus St. Gaudens? Come back next week for the answer.
Patrick A. Heller was honored as a 2019 FUN Numismatic Ambassador. He also received the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, the 2017 Exemplary Service Award, the 2012 Harry Forman National Dealer of the Year Award, and the 2008 Presidential Award. Over the years, he has also been honored by the Numismatic Literary Guild (including twice in 2020), the Professional Numismatists Guild, the Industry Council for Tangible Assets, and the Michigan State Numismatic Society. He is the communications officer of Liberty Coin Service in Lansing, Michigan, and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at www.libertycoinservice.com. Some of his radio commentaries, "Things You ‘Know’ That Just Aren’t So,” and “Important News You Need To Know,” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio archives posted at www.1320wils.com).
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