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The Big Bluff in Silver - Weekly Wrap Up

Weekly Wrap Up with Chris Marcus

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It’s been a crazy couple of weeks, full of real action in the precious metals. But with physical silver scarce and premiums high, why is price falling on the COMEX? Host Craig Hemke sits down with Chris Marcus of Arcadia Economics to break down all the gold and silver news you need to understand the current market.

In this edition of the Weekly Wrap Up, you’ll hear:

  • How the CFTC are like the Keystone Cops.
  • Why retail demand for physical won’t be going down this year?
  • Plus: The impact the physical run is having on futures markets.

“I think the best part is that, personally, this is the most encouraged I’ve been in the twelve years that I’ve been following this. And it’s always been based on—this manipulation—it’s been based on a bluff. If you watch THE BIG SHORT, you hear how the banks, their play is that, you know, ‘make you feel stupid for asking, hope that nobody ever looks.’ But when people look, the clues are there. Sometimes it’s just so unbelievable that this could actually be happening….it seems like things are coming to a head at an accelerated rate now.”

To hear Chris’s full thoughts on the week’s gold and silver news, listen here:

Announcer: You are listening the "Weekly Wrap Up" on Sprott Money News.

Craig: Happy Friday from Sprott Money News at sprottmoney.com. It's Friday, February the 12th, 2021. It's time for your "Weekly Wrap Up." I'm your usual host, Craig Hemke, and with Eric still on the sidelines, we have a brand new guest coming in to help us this week as we put the finishing touches on the second week of February. And our new guest is Chris Marcus. Many of you are familiar with Chris and his site, Arcadia Economics. Often Chris is the interviewer, but he's turned himself into such a tremendous expert on silver that he's becoming a very frequent interviewee and thus he is with us today. So, Chris, thank you so much for spending some time with us.

Chris: Craig, thanks so much for having me. Really a pleasure to be here, your show, and especially the calls with Eric have the last several years been regular Friday, listening, credible information you share on your site as well. So, honored to be here and help contribute to that.

Craig: Well, it's great to have you. And hopefully Eric will be back soon. In the meantime, one of the features that we have every month here at Sprott Money is our Ask The Expert segment. The next one will be recorded next week, but you still have time to submit a question for the guest and that guest this month will be Danielle DiMartino Booth, former official at the Dallas Federal Reserve Bank. And I guess we'll call her a Fed insider because she really is.

If you've got questions about the Fed, central bank policy, inflation, or economics, send it to us at the word submissions, that's the word submissions@sprottmoney.com. We'll try to work it in when Danielle and I record next week. And be sure wherever you listen to our "Sprott Money" podcast, give us a like and subscribe so that you don't miss an episode. All right, Chris, let's dive in. It has been a crazy couple of weeks and you've been at the forefront leading the charge. How would you assess the action over the last couple of weeks with greater retail involvement and some real action in physical metal?

Chris: Well, Craig, I think the best part is that, personally, this is the most encouraged I've been in the 12 years that I've been following this. And it's always been based on this manipulation. It's been based on a bluff. If you watch "The Big Short," you hear how the banks, their play is that, you know, make you feel stupid for asking hope that nobody ever looks. But when people look, the clues are there, sometimes it's just so unbelievable that this could actually be happening. But I think it's really encouraging because whatever happened, and maybe a couple of years from now, it'd be fun to go back and research how all this short squeezing came down and then flared into the silver market, but whatever's happened in the last two weeks, the result is now you have this Wall Street silver group, which went from zero, which is separate from Wall Street Bets.

There's a specific Wall Street silver group that went from zero to maybe we have like 25,000 members in a week and a half. And to me it's been awesome because I've been getting a lot of questions. I know other people in the silver space have been saying, "Hey, here's what we have and, you know, you guys have the energy, you have the time, go research it." And now there's a lot of evidence being compiled. And in general, the awareness of what's been going on, then when you factor in what actually happened over the last two weeks, how you saw one of the more blatant felonies that I've at least seen in my financial career, which includes 11 years on Wall Street, and then another decade since then covering the things I saw on Wall Street and that we see playing out now.

And again, I understand the severity of phrasing things the way that I did there, although I'll be happy to explain exactly why there's certainly a lot of unanswered questions that I hope the CFTC is looking at. I know they decided there's some concern with the Reddit traders. Well, I have a lot of questions for concern about things that happened in the futures markets that have nothing to do with the Reddit traders. And we can dig into a lot of those, because it seems like things are coming to a head at an accelerating rate now.

Craig: Yeah, that's for sure. It is the CFTC, you know, they're considered to be the Keystone cops for a good reason. And for them now to say that it's the Reddit traders that are the problem, it's like back on that Monday whatever that is 11 days ago, just because silver moved up $2.50 they had to come out and say that they were surveilling the market for manipulation and fraud. But we've had five down days for $2.50 or more in the last five months and that didn't seem to bother them in the least. But the impact has been substantial, Chris. I mean, driving all the folks into buying physical metal, wiping out dealer inventory. What have you seen and what have you reported on in terms of short-term shortages and then the premiums that are involved?

Chris: Well, I would say that the first week after that weekend where it became an event, the first week, that's the first time that I've ever consciously used the word panic buying. I don't remember anything like that. In 2011, you know, I was two years old in 1980. So, that has calmed down, from the dealers I've spoken with. It was pretty consistent last week from anyone I talk with around the globe, from the dealers I've talked with.

This week, it's been steady, not as frantic and certainly we'll dig into the SLV additions, which all ties together where we start seeing there's some clues here. Because, all right, fine. Retail, some people think doesn't move the market. Keep in mind now this week we're seeing dealers saying shortage delays on the wholesale level in a thousand ounce bar market, which is kind of like, now we're talking about the last line of defense.

But, Craig, when you mentioned the CFTC and at least some of the things that, whether they look at or not, the best part is I think people can see these things now, where people like you who have helped phrase it clearly and put it in perspective, because for years there were people who were confused and scared and they could see the fed was doing QE2. They could see the fed was doing QE3. They could see the fed was doing operation twists, calling it balance sheet neutral. Maybe they didn't see that. That was also doing swap lines to Europe, which kind of offsets one of those legs of the hedge, but they get the idea that a lot of money is being printed.

They're concerned. Now they see these, I haven't watched the video yet, but I'm told 40% of the dollars in existence were printed in the last year. So, they see this, they turn to gold and silver and they're wondering, gee, well, why, there's more money? I mean, this seems insane what I'm hearing. And it comes back to, fortunately, that we don't have to guess on these things, Craig. I know you've heard the interview I did with Bart Chilton, which I felt blessed to be a part of because it was all these things for years, we looked at the clues, but hey, here's the guy that was in the investigation.

So, I mean, is it worth mentioning that he says that the other investigators started blocking emails from people who were submitting evidence and that they said they found nothing. Bart described how he found plenty, and even leaving all that aside, eight years later in 2020, JP Morgan settles for, in the CFTC press release, committing hundreds of thousands of occasions of spoofing in gold and silver. And to be fair, they rigged the treasuries too.

So, Craig, it wasn't, you know, once or twice that might've been hard to find or, you know, a couple of times, a hundred times or a couple thousand times, it wasn't even a hundred thousand times. They said hundreds, plural, of thousands of times. Now it's interesting because one of the questions I asked Bart, again, my background is on equity options trading floor. I was a market maker and a specialist on the New York stock exchange. So, I was working directly in a trading floor. It was not trading Colmex Futures, but anyway, I had some background when I started looking into this. And thanks to guys like you and Andrew McGuire, over the years, I said to Bart, the way I've come to understand it is, let's say Silver's at $25.3 and you start nudging it a little bit. You know, you get a little farther down to 24.99, then you have all the stop orders. Keep in mind these banks claim to be working the customer orders, their customer desk. Although we found out in the confessions that they screw their customers too, their traders' words, not mine.

But I asked Bart, "Is that how it works? That if you nudge it a little, then you trigger the stops. You trigger the algorithms and all that other stuff that, gee, if someone knew how all that was set up, like, certainly the banks advertise that they do, could that drive the price of silver down 50 cents or a dollar in the middle of the night, in five seconds?" And Bart says, "Well, actually that's a good description. Actually, it's a really good description."

And then he explains, he talks about spoofing for about three minutes and finishes by saying, the only difference between what I asked and what happens is that now when it happens, the moves are bigger. Again, I think I'm quoting word for word because I've said it enough times and I'll repeat it again because it's that important. I know in the metals community, some people say, well, you know, they fine them for spoofing. That's not the biggest thing. I never heard of this spoofing when I was on the trading floor. I'm not saying people don't do it yet. If you relax the semantics of the definition for a moment, he described exactly what we've seen and he called it spoofing.

So, when we see the price drop for no reason, and then you look at the volume chart and you see, well, that's weird the thing fell off the cliff and there's massive spike in volume. Again, as someone who worked for a pretty well renowned or regarded trading shop that was quite well known for their training program. We were specifically trained you would never do that. In fact, if I sold a massive order, like we saw when gold fell from 1,900 in the middle of the night, September of 2011, at the same time that the Swiss said they were gonna peg their Franc to the Euro, seems like an odd time for someone to say, "Wow, I just gotta get rid of this gold now." You wouldn't do that. I was trained not to do that. I would have been thrown out the door the same day and here you see it.

So, I wonder when the CFTC has done asking about the Reddit traders involvement, are they gonna look into the sell report that JP Morgan issued? I see a time stamp of 4:59 A.M, February 2nd, which was a Tuesday. Keep in mind that was after physical dealers had to stop sales Saturday night and into Sunday because they had sold all their product. Some of them lost money because they didn't think it was Friday before that weekend, Craig, because I know, fortunately you reported, I haven't heard any of the JP Morgan or CNBC report.

That 34 million shares were added to SLV, which, to put that in context, because I know, you know, you could say, well, that's one 30th of the annual supply. So, at that pace, they'd eat the whole supply in 30 days and there'll be no electronics next year. But after I thought about it a little bit more, I went back, looked at the silver Institute numbers. And if you look at last year, and I don't know. I don't know anyone who's making a case that industrial demand's coming down. And, Craig, would you say, based on what you've seen and heard by the dealers, it's not looking likely that the retail demand of people who are buying coins and bars is going to be lower than last year, is that fair to say?

Craig: Yeah, that's fair to say.

Chris: So, last year Silver Institute says 962 was the supply and industrial plus retail adds up to 931. Now, what is said to have gone into the ETPs. If you look at that report, exchange traded products, which is SLV and the other funds, last year was 350 million ounces. So, you could say on Friday, two weeks ago, the 29th, they took a 10th of what went in last year, but when you consider that 320 million of those ounces, that was a deficit. That got put on the credit card.

So, really, you could say that what was actually available last year for SLV in the trust was about 32 million ounces. And Friday the 29th, you had 34 million ounces added to SLV. And you had panic buying into retail market over the weekend. Monday, SLV reports adding another 20 million ounces. Now, these are records. You can look, Craig, you know, you put the charts up and you'd see Nick Laird's gold charts are us. 35 million in a day, that had never happened before, right?

Craig: Right.

Chris: And then Rob Keens of Gold Silver Pros, he's been in Austin lately where I've been staying for a while. He came over on Tuesday, about five minutes after I'd seen the number for February 2nd, the day that JP Morgan put out their sell report, and it was 61 million ounces. I met Dave that the price fell 10% where you see that typical heavy volume pattern fitting exactly what Bart describes. And here's the interesting thing. I know there's a lot of confusion. I don't have any interest in getting anything inaccurate or slandering anyone, so I called iShares last week. Because, Craig, you know that I have you on my show, David Morgan, everyone that I can find in silver. And I'm trying to say, how is it possible they added 110? We're like, it doesn't make sense.

Craig: It's a lot.

Chris: Nobody can figure it out. So, I'm thinking, I don't know. Maybe do they say they added it and they're working an order and that's competing for the supply. So, I call iShares woman was really polite. She says, I confirm if they say shares are added, what does that mean? She says, metals added or subtracted that day. Okay? I asked, "Who puts it in or takes it out?" Craig, would you like to take a stab at this one?

Craig: I'd love to hear what she said.

Chris: She said, "It's the custodian." And I say, "Oh, who's that?" "JP Morgan." And I actually said, I tried, she was very kind and nice. And I said, "I'm trying to say this respectfully, but they did just get fined or settled I'm told." Interesting, you know, they just paid $920 million. Not a peep. No word, no word. Jamie Diamond is going to hang out apparently with Joe Biden in the white house, but still no word on that. Leave their junior guys out to roast, but never say anything. So, we'll leave that aside. I said, "These guys have just been fined. I mean, does that seem like at least a cause for concern or conflict of interest?" And then I mentioned, "While I was looking on the website for the audit and I couldn't find it, can you help me find that?" And she says, "I think there's something in the SECs Edgar database."

Craig: The audit of the actual inventory?

Chris: I'm asking iShares for the audit of a trust that just added a number and an amount of metal that, frankly, I can't figure out how it's possible, and nobody else I know can either. And she's telling me that there might be an audit on the SECs website. I said, "Please, can you check?" I told her, "I have a show. People are asking me, frankly, I'm concerned. Please, can you check?"

Because I mean, if let's say, Craig, I go out and tell people, I'm giving my best honest information about silver. I don't claim to get everything right. But at least I'm put my face to it. I put my name to it and you can see me, people can find me. I don't have any, but I'm like, frankly, I don't know. I would think I would be financially liable if I knew that and didn't say anything. So I said, "Please, is there anyone you could?" She says, "Can I put you on hold?" I said, "Yeah, I'll wait, I wanna get this right." She comes back and sends me an inspection letter, not an audit, but an inspection letter that an audit was taking place. And, Craig, you know when the last time anyone outside of JP Morgan has looked at anything in SLV?

Craig: I can't even imagine.

Chris: Would it make you feel comfortable if you were an SLV shareholder to find out the last day of the audit was March 6th of 2020, and the price started falling the day after, and within a week and a half, it was under $12. The audit is stamped March 20th. And that was what? I'm like, March 20th, wasn't that right before the [inaudible 00:17:40] thing?

Craig: That's right. Yes.

Chris: And I'm thinking and I'm remembering, and again, I'm not, I'm going to be careful how I phrase this. I just remember from Wall Street, when a company had bad news, they would tell you on Friday and hope you forget it by Monday. I'm like, wasn't that a Friday? Then I'm thinking, wait a second. You had the historic Sunday night announcement on March 15th where the Fed says, "We're going to quantitative easing." Then that week you have the stamp of the audit that Friday, Monday they go to unlimited quantitative easing and the EFP market breaks. No one has, besides JP Morgan, has any idea what's in there, and then [inaudible 00:18:18] points out this week, they're the custodian for the other trust too.

I mean, it should be, what is the plan? To put on a fox mask and ask us to dress up like chickens? I mean, this is, with all due respect, is that, is the CFTC asking about this? Is the CFTC pulled those trading records yet?

Craig: Chris, they're due no respect. So, you can, the whole all due respect part, you can drop off

Chris: Craig, I actually, I have something I've never mentioned to anyone before. So, you saw this where Bart Chilton, one of their former commissioners who said this on the record.

Craig: Right before he passed away.

Chris: When the CFTC called me to ask about the conversation with Bart and the different things he had revealed, do you know what they said when I told them?

Craig: No.

Chris: It never happened. I've never been contacted.

Craig: Gosh people.

Chris: You saw that. And I think there's a lot of people that listen to your show or listen to my show that saw that or heard you talk about it or felt it was relevant. I've never heard a word from them.

Craig: It's not surprising, Chris. And again, Bart was the one guy that was trying to work it from the inside was, I know Andrew McGuire, a friend of mine. I always thought he was an honest guy trying to help and get to the bottom of it. The CFTC said they found nothing while over the same time period, the department of justice found hundreds of thousands of instances, as you said. It's not surprising. And I always kind of felt, because Bart had to know he was terminally ill when he was interviewed by you, because it was not...

Chris: Actually, Craig, my understanding is that that is not the case.

Craig: Oh really? I always thought it was kind of like a deathbed confession.

Chris: I understand a lot of people thought that, and perhaps a good time. Just if you go to when I originally posted the interview, there's two versions of it. One doesn't have a yellow thumbnail. If you see the original version, there's a comment that appears to be from his wife saying that that was not the case and he did not know. I have heard from her and I'll leave that private, but I do believe that he did not know at that time.

Craig: Okay. Well, it's fascinating. I would encourage everybody to go to Arcadia Economics and their YouTube channel and watch that from two ago maybe, Chris. How long ago was that?

Chris: That would have been March of 2019, so, almost two years now.

Craig: All right. And then, finally, in our final minutes, Chris, I would also encourage everybody, if you're new to the sector, whether, you know, in the last couple of weeks or the last couple of years, and again, you saw what happened two weeks ago where, you know, there's no silver to be found anywhere. What you can find is like $40 an ounce, but yet the price on the Colmex actually falls 10% and you thought, well, that's interesting. One of the, I guess, defining pieces of literature that you can read is Chris's book "The Big Silver Short." And I've heard, Chris, you did that a couple of years ago. But I would give that a big thumbs up, if anything, because there's at least one chapter in there that's definitely a must read.

Chris: Chapter three is a good one. It's this guy, Craig, from TF Metals. And I mean, the real purpose of the book was that, you know, if someone's just hearing about all this now and wanted, I mean, fortunately guys like you, Craig, and Eric have put the information out there over the years, but at least to try and put it in one place where you heard from you in chapter three, David Morgan's in there, Bart Shelton, Andrew McGuire, Ted Butler.

I mean, I like to think I could have written a useful book. But I mean, it just, I loved the way it came out, where you got everyone's perspective who's been following this, and I would just suggest to people that understand a lot of what's happening is confusing. And it doesn't make sense. It's designed not to make sense, but again, what is more encouraging to me than ever is seeing that, it feels to me like the banks went in on a big bluff last Tuesday, but because more people are understanding what's really happening, why these things are happening, they didn't sell their silver. They bought more when it went down.

Craig: Yeah. Yeah. Which is obviously the key to the whole thing. Where do we find the book, Chris, for people who wanna check it out?

Chris: Well, you can find the print version on Amazon. For people who like listening, we did have a, we do have a audio version, which is nice. We didn't get actors to read it, but you can hear me and Craig talk about it. And, Craig, I love how you laid this stuff out years in advance. That was really my, the second part, you know, to have people hear guys like you saying in advance, and you can hear that on audio, all at arcadiaeconomics.com. There's a tab for the book at the top and hopefully that's helpful for people in this important time.

Craig: Well, and hopefully you've helped today make it clear for folks, because it's not the acquisition of the SLV shares, though I guess in a sense helps. What you've gotta get is physical metal. If you're going to make any change at all, we've gotta de-leverage the system, we've gotta take the out of the bank's hands. So, you gotta get your hands on your own physical metal. And though you might have to wait for it at this point because of the action that, you know, everybody's taken the last couple of weeks, just keep it going. Your best source for physical metal is sprottmoney.com. You go there, there's always great deals. There's always great inventory of the most popular bullion, bars, and coins, and you can check it all out at sprottmoney.com. If you wanna talk to a real person, pick up the phone, give us a call, (888) 861-0775.

Chris, this has been tremendous. I hope we can do it again soon because I know everybody has benefited from listening. For now though, we'll have to wrap it up and I hope you have a great weekend.

Chris: Thanks so much, Craig. Great to be with you as always.

Craig: And from all of us at Sprott Money News and sprottmoney.com, thanks for listening. We'll talk to you again next Friday.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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