Silver Shortage. Is This the Start of Silver’s Biggest Rally Ever?

Craig Hemke (00:00)
Hello again from Sprott Money and SprottMoney.com. We're now about halfway into the month of October and what a month it has been already. It is time for your Ask the Experts segment. I'm your host, Craig Hemke and joining me this month is my old friend, Josh Fair. Josh is the founder and CEO of Scottsdale Mint. And with everything going on in the world, I thought great guy to get his perspective. Josh, thank you for taking some time.

Josh Phair (00:28)
Glad to be glad to be back with you.

Craig Hemke (00:30)
Of course, there's some Scottsdale Mint product you can find at SprottMoney.com. You can find all kinds of things at SprottMoney.com, especially now it's time for the fall big bullion sale. Go to SprottMoney.com. You will find silver there for just a couple of bucks over spot. ⁓ They will sell it to you. And that's a pretty good deal as long as you can still find some. It's getting harder and harder, it seems these days. SprottMoney.com - provider of all this content, thank them by checking out their site whenever you are in the market for physical metal. Josh, like I said, you are the CEO of Scotch Steel Mint. You are a great follow on Twitter X for anyone on that platform seeking financial information. Josh, Philip with one L fair P H A I R is your handle. ⁓ Josh, I was trying to think of where to start.

We're recording this late on the 15th, late in the day. It has already, I mean, it's been a crazy month. It's been a crazy week. We've seen prices get shellacked a couple of times in London this week, only to rebound. Went out on the highs today. We're now over 52.50 in the futures market. We're over 53 in spot. Josh, let's just start. I'll just throw the floor to you. What do you make of all this?

Josh Phair (01:51)
I'd like to say I can predict everything, which I cannot, but I did see this coming. Was probably talking this summer that there's a metal war that's going on. There's a race for metal above ground and below ground. I think what we're seeing also at the same time is like when you have, and I've talked about it as well all year is

Craig Hemke (02:04)
Mm-hmm. Remember that.

Josh Phair (02:19)
You've really only had, I'd call it, the central banks and the huge institutional players that have been clamouring for gold. No one's really messed around with silver yet. And so that was, let's say, earlier in the year, everyone felt like, ⁓ is silver being left behind? And I was like, just wait. And I think we're in a situation where at the end of the day, things go up or down ⁓ depending on buyers and sellers. And so we're in a situation where there are now more buyers than there are sellers. And it's,

Craig Hemke (02:35)
Mm-hmm.

Josh Phair (02:47)
And it started to overwhelm the marketplace, and people forgot silver is kind of small. it was obviously, it started to get disrupted with tariff issues. So a lot of people are moving their assets into their jurisdictions. And so in the event of who knows what could be coming, is it a World War III scenario? Are we gonna be in a situation where certain nations aren't trading anymore? And my take there is,

I think Trump and the tariffs is preparing and trying to harden the US and their trade partners to move away from China. So if we went to a kinetic war, neither side would be allowed to trade with the other anymore. how do we, that's not an overnight thing. you start to see it all. And so now I think the buyers are just overwhelming the sellers and it's not even speculators. That's what's kind of crazy about this. is, so, you know,

Craig Hemke (03:26)
Seems that way.

Josh Phair (03:46)
So Silver's made a heck of a move, but I still feel like we're fairly early, believe it

Craig Hemke (03:51)
Yeah. You know, it's interesting because that's been the main question on my mind and at my site is, you know, are we just topping out again at 50? Are we going to blast through? Is silver just simply now going to play and catch up to gold? mean, gold started making new all time highs 18 months ago and now it's almost doubled basically since then. Will silver now make all time highs and double in the next 18 months? Or is it just going to roll over again? know, and it's the situation, Josh.

This whole year, when we had big futures price premiums in February, March, and April, all this metal flowed into the US. You had these huge delivery months on COMEX, most deliveries ever seen in February for gold. But now we've seen the opposite in silver. ⁓ Can you connect that? Is that part of what's driving price too? Is that a physical metal situation?

Josh Phair (04:48)
Yeah, a lot of silver came to the US too. And I think the, the Comex vault inventory is at, at some of its most recent highs. So it's, it's been holding a lot of silver here. And then he kind of look at the LBMA status and that they're kind of thin. And so a lot of people are like, is London having an issue?

Craig Hemke (05:05)
Mm-hmm.

Josh Phair (05:10)
The issue is here. So yeah, so it's the US does not have a shortage of silver. And I'm talking industrial raw material, etc. London does. And so the banking system in London is very much predicated on leasing and trading. It's more of a banker's market than it is a physical market. So when the physical market's not there anymore, that puts pressure on those that are leasing it out.

And leasing doesn't necessarily mean there's anything wrong with it. But if you're leasing a product in the US, you actually you can't lease through the Comex. So someone actually has a bank that has to buy that material, pull it out of the Comex. And then they may, you know, loan it, do that sort of thing. Well, in London, it's much different. It's just think of it as it's a big pool of assets. And I think the reality is, people want more and more metal, not in London anymore. So you've got the BRICS countries, you got China.

You've got other people who are pulling material out. And then a lot of material is coming to the US. So the old adage of go your treated best is very true, not just for people, but also assets. That market, you know, where the US was paying a premium because there were buyers here in the States, not retail. Retail has not been participating in gold silver for the last two years. It has been a seller's market.

And so refineries have been overwhelmed with the old 90 % coinage. Just call it your random secondary 10 ounce bars, 100 ounce bars. There's been so much of it. The refineries are so overloaded with silver that they're two to four months out. But it's not just the metal. It's also that they don't have the financing anymore. They're tapped out. And they're tapped out for a few different reasons that we can get into as well.

Craig Hemke (07:05)
Well, let's do because I, you I, you kind of boots on the ground running Scottsdale mint. ⁓ I started hearing these stories last week. I had people on my site saying, you know, ⁓ these refiners aren't buying any metal. They've shut down operators. Not, mean, even the people that want to go sell grandma's candlesticks. That price is an all-time high. Nobody's buying that stuff, which seems kind of counterintuitive because there's the price is saying that there's a shortage, at least in London. ⁓ how does. What's behind that, Josh? What's the math from a dealer's standpoint? What's behind them not wanting to take any inventory yet?

Josh Phair (07:41)
So in a normal world and I'll kind of kind of kind of go to like I would say the strip mall the guy that says coin shop, you know all the way to the the retailer guys those those are you know a coin shop in your local town, know, you're doing it they're doing estate sales people are coming in and if there's more sellers Than there are buyers they then have to sell that wholesale because they get tapped out So maybe it maybe a little guy maybe he's got 50 grand. Maybe he's got a few hundred grand. Maybe he's got a couple million

Craig Hemke (07:49)
Yeah.

Josh Phair (08:11)
When he has too much inventory and he needs cash to buy the next guy's stuff, well, he flips it to a wholesaler somewhere. The same thing happens with pawn shops. They get scrap goods, all that goes to aggregation and aggregators eventually sell to a refinery. Well, all along the way, people are paying cash on the spot or they're writing checks. They're sending bankwires right away. And so it goes from a cash market and eventually someone has to finance it at the far end. And so as long as everything's working,

If we go back to COVID times, there was not enough metal coming in. So these coin shops and the strip malls had to go buy from the wholesalers or companies like mine that make new products. They had to have that new product on the shelf. So when customers walk in, can sell it. So we've been in an absolute sellers, a selling state where retail has been exiting silver and gold. They think it's too high. They think it's great. Now other people might need precious metals.

Look, the world, the economy, inflation, things are expensive and metals are up. I think a lot of people are like, hey, it started around 35. 35, that's a high price in silver, I'm out. And here we are now over 50. So in that normal situation, that's how metal kind of flows up. And then the refineries, guess what they do? They then turn that into a COMEX deliverable bar that then ships into the exchange. And then they get money back for

So in that's when it kind of goes up and flow. So the banks have essentially been sucking up a lot of the silver and gold over the better part of two years now. Something's changed though, Craig. So while there still are sellers out there, absolutely, buyers are now stepping in. So it's almost like a new class. So there's a of people probably watching the show. Maybe you were around in single digits. Maybe you bought during COVID when it dropped into the teens or you bought in the 20s.

And or other people are just like, I'm out, but there's a lot of people now that are go, man, where is silver going to go in the next five years? And they're, looking at it. And I think if we start looking at inflation-adjusted numbers of the 1980s, $50 high, you've got another four X ahead just, based on that. And so I think new investors are stepping in. So suddenly there's competition for silver there. And then, and then what, what's happening is that the guys in London, they, they need their, they need their silver.

Craig Hemke (10:11)
Yeah.

Josh Phair (10:35)
And so they're no longer willing to lease it out. That lease rate, which is normally, let's say, last 20 years, one, 2 % a year on average. Overnight rates, short-term rates are going, they've been averaging between 40% and 85%, even as high as 100 % annualized. that's, and you just go, why would anyone pay that? Well, in a normal world,

Craig Hemke (10:35)
Mm-hmm. Right.

Josh Phair (11:01)
Metal is financed through this London leasing program at very economical rates, both gold and silver. So they'll take a jewelry company, a big manufacturing company, or a refinery, and a bank will say, "I will floor-plan all your inventory, but everything has to go through me —the banker." Well, that's great when they're giving you good terms. In a situation now where the bank goes, well, hey, London's paying me more money than you are, so I got to charge you more rate. So I have to, so they're basically, people are having to sell silver to the banks.

Release it because they don't want to pay those interest rates. It's now going back to London, or let's just say you're a company that is buying? Who's buying more and more silver for whether you're making semiconductors, medical equipment, brazing wire, whatever you're in, it's not just the bullying guys, investment guys, you might go. You know what, rates are a little high. I'm not gonna buy any extra metal right now. So think of it like it's causing all the metal to really flow to London. So now people have been at it, probably starting around Thursday of last week, people were actually pulling silver out of the COMEX. They're financing it, though, put it on airplanes. On average, you're probably talking about 75,000 bucks to fly 300,000 ounces of silver on an airplane. Their cost, their cost of transport and finance, has to be less than what they're gonna get paid for in silver, for that deliverable silver in London.

Craig Hemke (12:26)
Right.

Josh Phair (12:26)
That's what's driving it. So now you've got gridlock at a lot of the manufacturing companies. You've got gridlock at the refineries, the ones that are all banked heavily. so companies like myself, while we have lease facilities of a particular gold over in Europe, that's not how we run our manufacturing in the US. So we're not affected by that. we're...we're able to keep things flowing. So we're getting very, very busy on our side. And there's a few other players in the industry that are more well-heeled, let's put it that way. And they aren't subject to the whims of what's happening with the banks. So that's kind of what's causing this. And now people are buying, they are buying Silver Eagles again. They are buying Maple Leafs and Silver Bars. And so that's starting to dry up. So you're gonna start to see the marketplace change. dramatically here, and it's happening so fast I didn't want to tell you some of the phone calls that I've had from ⁓ people that deal in this that need that need product for sure so this is this is this is pretty wild

Craig Hemke (13:30)
You might use the term gridlock. It seems kind of broken, not that it can't be fixed. But if all this metal flowed into the U.S., both gold and silver, back in the first three, four months of the year, I mean, we watched it go into the COMEX vaults or whatever. You know, we heard these stories, the guy from Stone X saying it was a couple thousand metric tons of gold that came over. And so now that has left not enough, well, let's just say silver for sure. in London, that can you fly, can you move this process along enough that you can actually fly, you know, a plane load that's only 10 metric tons. I was doing the math as you were talking —less than 10 metric tons. Can you fly enough over there to mitigate it on that end? But now if on the other end, you've got ⁓ refiners that are kind of getting behind the eight ball, you know, if people are stopping taking in new inventory just at the same time that retail demand is picking up. Seems like it's just a real pickle, I guess. Am I missing something?

Josh Phair (14:35)
It is, I think that just goes back. It's a supply demand equation. And one of the other things that happened, that happened during COVID, the moment we had shutdowns, every industrial player tapped their entire credit line and they bought as much gold and silver as they could, which really makes sense, right? Especially the guys that were making freezers and they needed silver and gold. And you do not want those supply disruptions because there were situations where, hey,

Craig Hemke (14:39)
Right. Right?

Josh Phair (15:02)
Metal might be coming, but it might be a month or two out. So you just grab more than you needed. So that hoarding component can cause issues locally. So right now what you've got is you've got hoarding happening now in Europe, and then you've got people have to dishoard because it's not financially feasible for those that are financing in the US. So I would say, Craig, there's a chance this gets rectified in another week to two weeks. It could. It could also just keep going.

So I think it just really comes down to how much metal is loosening, how much gets delivered into London and does everything kind of get re-healed again. But if demand keeps picking up, you know, you could have everything corrected, but yet silver just keeps going higher and higher and higher. So, but we could also get smacked and we're going to have some extreme volatility to the downside at some point as well. we we've seen things like this. If you've ever seen the rhodium charts, you know, during, during COVID,

Craig Hemke (15:46)
Yeah.

Yeah!

Josh Phair (15:59)
You know, we see these micro those are smaller metals and so we always talk about the so markets pretty small But it's still huge. Whereas if you actually look at rhodium, ruthenium, iridium, those are only a handful of trading houses that move this material. It's not quoted anywhere online Everyone calls on the phone and they they hit a price that they're willing to deal with each and every day Silver market is much different

And then I think there's another factor that's probably been less underpoured. And you've probably heard this in the past, but a lot of the world doesn't view silver as precious. They view it more of like your hopper. But the higher the price gets, it starts to interest, let's say, people in other economies, they start to think of it more as a precious metal. So I think we're getting a factor there now. You're seeing videos in China of people clamouring for gold. So.

Craig Hemke (16:52)
Mm-hmm.

Josh Phair (16:53)
Are people going to be clamouring for silver as well? know, gold now $4,200. That's expensive. So you look at that gold silver ratio, you're like, man, silver is a deal. So I think you've got new population centers that become investors in something that they weren't maybe participating in last decade. So this is, I think that's an interesting dynamic that's driving things as well.

Craig Hemke (17:17)
So in the short term, know, prices were already rallying. I mean, we had this great month. Price of gold broke out above 3500 on the 1st of September and immediately targeted 4000 and beyond and fine. And so silver is tagged along as you'd expect. It's it's just gotten this goosey stuff in the last couple of weeks when I think it was the October the 2nd when all of a sudden we went from about a 20 cent premium.

of futures versus spot the way you'd expect all of sudden a backwardation where it was the opposite. And then that widened out last week. I saw it as much as like 275 last Friday. ⁓ there's a long way of asking you what is a short question. What if this does get resolved over the next couple of weeks? What do you think is a signal that would show it's happening? Is it that spot price getting back onto the futures price? Is it those lease rates coming back down? Is it the borrowing costs for people that are trying to use the SLV as a flywheel? mean, what are the, what do you think are the things to watch to show that it's actually, that situation is resolving?

Josh Phair (18:25)
Probably all of it. We've even seen it a little bit today where we've seen that gap between futures and London has narrowed a little bit. I think, and then I'm going to say this, someone is squeezing London. if we take, you if you watch the movies, you know, about the drug, the drug dealing movies, you know, you never kill, you don't want to kill your customers. I think, and I'm not saying all bankers are like drug dealers,

Craig Hemke (18:29)
Yeah? Mm-hmm. It is pretty safe. Josh Farrer says all bankers are like drug dealers. I'm sorry. All right.

Josh Phair (18:58)
Don't put me on record on that. But if we just have to think of it, they have to make money off of their customers, sometimes too much, sometimes. So, you know, in this situation, someone's getting really squeezed badly and someone's making a lot of money. So I think we're we're in a situation where, ⁓ you know, they're going to have to release the pressure at some point. So you got it. And then they're going to do a squeeze again. So that's that would be my my prediction. So what what to look for? Probably all of it.

But you know for someone who's dealing in the physical metal it gets very difficult because the the bid ask prices because of all the volatility they're widening because there's just extreme risk of buying and selling things and and you'll have to Continuously replenish things, you know on different continents the pricing is different in Europe than it is in the States So this gets it gets it gets kind of interesting. So I think when we see that if the volatility

Craig Hemke (19:37)
Right.

Josh Phair (19:53)
and the spreads start to tighten, that means we're kind of normalized, at least a little bit. But that doesn't mean we can't go again. So it's, it feels like this is gonna be a longer term thing to me. Even though it might be mainly resolved, but that doesn't mean that think, Katie bar the door again, here we go. It's just, ⁓ I think it'd be healthier for the market if some of this could resolve, but that doesn't mean that's gonna stop the price, if that makes sense.

Craig Hemke (20:23)
Right. Hey, what happens when we get back to the normal stuff driving it? know, next year, I've been writing about yield curve control and whether they might somehow try to monetize, you know, like Trump has said, or Besson has said, monetize the balance sheet, that kind of stuff. This could be kind of tangentially related to that. Because that's my, I guess, my last question. You watched all this ⁓ metal. You got famous.

Josh Phair (20:38)
Yep.

Craig Hemke (20:51)
Not that you weren't already famous. mean, look at you for crying out loud. However, you started your Twitter account just earlier this year and now you have 37, 38,000 followers and right out of the shoot, you had a video talking about kind of, well, the opposite of this situation, but it extends into today about the metal flowing out of London to the U S and now it's flowing back. I mean, it seems as if it's an extension of the same problem. What if, what if there is just no metal to ship back? I mean,

What, again, I guess ultimately ⁓ we'll watch what's going on at present with all the lease rates and stuff, but I would imagine you're preparing for more of the same kind of structural issues going forward.

Josh Phair (21:36)
So I have a degree in risk management. And so just, I look through the lens of risk mitigation as much as possible. like in my manufacturing company, the amount of redundancy that we have equipment wise, different things so we can keep our customers flowing, the same thing with metal procurement. So we don't just source out of one country or one region. We try to source from multiple really good partnership, really good jurisdictions. we're going to see

we're gonna see problems. We're gonna see probably continents or people that you can't trade with anymore because it's only moving in. You're seeing, know, the BRICS nations are, looks like they're building their own gold settlement layer ⁓ that the United States might not be invited to. What's that look like? this, I think the dynamic here is that you have to be nimble. You gotta be as careful as you can. So, you know, what my company did and how we grew a lot during COVID is,

Craig Hemke (22:21)
Mm-hmm.

Josh Phair (22:35)
we never sold product that we hadn't secured physical metal for. So, you I may have told some wholesalers to some people, it might be two, three months, but I have secured that material. I have already purchased that material and it is coming to me and it's from a known, it's not like I'm just guessing I'm going to find it. So that we were able to get through that tough time and deliver every single ounce. And so that's where I think a lot of times if you can't do that and I respect the companies that have to say, I have to turn off my trade desk and that's okay.

And so we've done that before as well. you can't secure the physical metal, you have to hit the pause button until you can kind of sort it through. That's the role we're looking at. So I think it's just making sure you've got those partnerships, those relationships ⁓ to make sure you get through the good times. meanwhile, for most of you that are watching this, this is just more, I call it industry's chatter of what's happening.

Craig Hemke (23:14)
You can.

Josh Phair (23:32)
But what does that mean on the retail side is buy from places like Sprott Money and my company does a lot of work for them and makes custom products for them as well. And it's buy from reputable companies that have been around a long time that you've done a lot of transactions for. so I think that's what ⁓ as a retail buyer, ⁓ it's a good time.

It's a good time to be involved in the game and hold it. really realistically, Craig, what else are you going to buy? AI companies that are just trading, they're just trading their own deals back and forth and money back and forth. they're huge, at huge unknown multiples, I think. think the world is, and I think that's why Silver is going up again, because where do you put your money? Where do you put your capital? How do you allocate it? And you want to hold things that everybody wants. And so I think we're in a situation where

everyone needs silver for industry, including the EV companies, the solar companies, the electronics, AI, computer chips, military is coming. all these things are needed for something. so it's a nice place to just kind of hang out in.

Craig Hemke (24:43)
And like I always say, yeah, maybe if you got to sell the candlesticks to get some cash to go to the grocery store, that's one thing. But other than that, what do I want to sell, turn my metal back into dollars for? ⁓ So that gets kind of into a hoarding situation. I think in the end, Josh, what you're saying from a physical standpoint, this is not 1980 and it's not 2011. And I think the people feel, yeah, we might get a price setback. I'm sure we probably will.

⁓ nothing goes straight up, but, ⁓ this is a whole new world. This is a whole different supply demand situation and physical, ⁓ stockpile situation. Let me put it that way. So if you get a pullback, it's probably just a bump in the road, ⁓ that folks should utilize to add to their stacks.

Josh Phair (25:33)
Yeah, I would agree. We could be sitting back and waiting for that huge dip to come and it never comes. We could, ⁓ or it could come here after you publish this video. Yeah, that's a tough spot. think people have been looking for dips since we left the 30s and it just, this is tough. It is tough to know and everyone just has to make their own decisions the best they can.

Craig Hemke (25:46)
this evening. You're welcome.Yeah. Well, Josh, it's been fascinating to visit with you and I know everybody appreciates your perspective. Again, so thank you again, Josh Fair, CEO of Scottsdale Mint. You go to ScottsdaleMint.com and see the work they're doing there. You can also buy Scottsdale Mint products at SprottMoney.com who of course is the sponsor of all this information. So make sure you keep them in mind as you're looking to add to your stack, but also just keep an eye on this channel. It's only middle of October. the volatility is going away. We got a lot more content coming for you as the month goes along. So make sure you hit that like or subscribe button on your way out so that you're notified every time there's something new. Josh, thank you so much. It's been fascinating to visit with you.

Josh Phair (26:41)
Yeah, how long have we known each other now?

Craig Hemke (26:44)
Josh, don't know, decade plus. I mean, we're all turning into the wise old mavens of this deal. We've seen so much over the last 10 years. makes, don't you feel, it makes you feel a little more skittish than it was back in the day, right? Cause you've seen so many other things in the past, but man, not that this time is different, but it sure feels like there's a different set of fundamentals this time.

Josh Phair (26:46)
Yeah, yeah, it's probably about right. Yeah,know. And it's kind of sad to I think of like people that brought me into this industry guys like Jim Sinclair, I used to fly around to hear him to meet him to talk with him. You know, and obviously, he passed away a couple years ago in his 80s. But it's it's almost like a passing of like, I would love for them to see what we're seeing today. And and maybe not how bad some part of the world, but there's some good things in the world, including metal prices. So ⁓ it is is it's it's we're. We've got a few more gray hairs for sure.

Craig Hemke (27:41)
We're adding them by the day, brother, that's for sure. But let's do this again soon. You're a great resource to have on hand to fill us in. And I know from everybody watching, we all it.

Josh Phair (27:52)
Great, thanks, Craig and the team.

Craig Hemke (27:54)
From all of us at Sprott Money, SprottMoney.com. Again, keep an eye on this channel. We'll have more information to come as the month of October continues.