$80 Silver Ahead? COMEX Panic and Backwardation Crisis | Andrew Maguire

Craig Hemke (00:00)
Hello again from Sprott Money, SprottMoney.com. We've reached the end of November, doing a lot better than we were at the beginning of November, that's for sure. And it's time to wrap up the month. I'm your host, Craig Hemke, joining us to see what happened in November. My old friend, Andrew McGuire, Andrew, course, an advisor at Kinesis Money, great expert in the precious metals. been doing a lot longer than I have. And we're all in his debt for all of the information he's provided over the years. He's to give you little more today. Andy, nice to see you.

Andrew Maguire (00:30)
Hey great to be with you Craig, brother from another mother.

Craig Hemke (00:34)
That's right. We only know who that mother was. ⁓ We could get her a Mother's Day card.

Andrew Maguire (00:37)
It's really great to be with you and I'm looking forward to your next trip over here. It'll probably be a golfing trip, I'm sure it will be.

Craig Hemke (00:49)
For sure. and, uh, may, we're from the last time I was over there, things are sure looking different. We got to talk about some of that stuff today. Uh, I want to remind everybody to get started. I mean, we are here at the end of November. It's about ready for the holiday season. Andy and I are recording this on Wednesday, the 26th. Friday is going to be black Friday. Monday is going to be cyber Monday. Um, give the gift that keeps going given the whole year. Stop by sprottmoney.com.

They'll soon have the holiday gift guide out. There's always great sales, great gift ideas within that gift guide. Just go to SprottMoney.com and set up your kids, your grandkids, get them stacking, get them to understand what sound money is. a gift from Sprott Money is a great way to get started. ⁓ Andy, let's do this. You know, we began this month with a rather sharp sell-off in the back half of October.

Gold was about 8 % from its highs and silver was maybe 10 plus percent from its highs and ⁓ Andy the doom and the gloom and my gosh it's all over it was a bubble that had popped. Well as we record this here on the 26th gold spot gold's back up to about 4200 which makes it up 5 % on the month. Silver spot silver's back up to 53 which places it up almost 10 % on the month just to bounce or are we about ready to extend these rallies?

Andrew Maguire (02:16)
Well, I mean, you just outlined what was the classic wash and rinse cycle. And of course, you know what it is. I mean, it really annoys me. It's part of the system, but it really annoys me when I call them pestilent, a pestilent group of speculators who decide that, hey, I'll chase momentum in any way. Now, these guys control momentum traders control pretty much 85 % of all the remaining open interest. Most of the open interest

Craig Hemke (02:21)
Mmm.

Andrew Maguire (02:45)
from real institutional guys disappeared. I don't want anything to do with that COMEX anymore. There are plenty more physical exchanges and we know where they are, where they get treated better. If I'm a refiner, a producer, anything where I depend on a real price, why would I have anything to do with this toxic mix of prices that sort of comes together?

If I'm to take a position, it's visible. There's only a few, a couple of big guys controlling the book. Of course, they're going to take you out. Of course, they will. And they do it on a regular basis. So momentum traders, to answer your question, here's what happened. So they decide it finally breaks out. What do they do? Oh, we're going up this time. So they hang on to their coattails of what is actually a physically driven market, but they get so much bloated open interest. So what you need to do is, of course, in the meantime, the COTs, the same guys that we know that operate the LPMCL pretty much, same footprint in both markets. And what do they do? Go short against every single one of those guys, knowing, guess what? When we go to, let's go to just about there, margin call. let's do another one. Bang, out they go.

What they've done is they've literally popped the bubble. Thank goodness, good riddance to the whole lot of them, because essentially all that did was put them into the other mode of shorting the market with the same commercials taking the long side of them. So by the time we get this equilibrium that we just talking about, these guys are pretty much out.

Craig Hemke (04:29)
Yeah.

Andrew Maguire (04:41)
Long or short, they've just been rinsed of their shorts. So I think it's what we've done is just established the next in this in the series of higher physically supported steps. That's been the process. And my goodness, great. I mean, what were two grand up from I mean, we've like 23 bucks higher than the beginning of the year. ⁓ 15 over $1500 higher in gold for the beginning of the year. I mean, you have to step back and look.

Take the char chatter out of it. What a good marketplace this is. And it's not being driven by these Western cartel, basically. And I think they've really, ⁓ to me, they've blown it. They've lost all the good clients. They've lost all the institutionals. They're now reduced to gaming and very few declining open interest of the

Craig Hemke (05:16)
Yeah.

Andrew Maguire (05:41)
Really any open interest that's in there is just really mostly speculative. And I think the parameters of that are so contracted, whereas before you could create a $500 ⁓ waterfall. Sorry, but in this is a lot of physical buyers who operate in physical exchanges, as you know, where you have to buy that bar if you want to sell it as opposed to just putting 4 % of skin in the dame, 96 % leverage position, which is just chasing a price, a dot on the screen. And all we saw was this dot on the screen, get squared up, and off we go to a much higher stair step.

Craig Hemke (06:17)
Right. Dot on the screen, which is what seems to be throwing most of the people that do look at it as a dot on the screen, throwing them off. Is this time different? That would be my next question for you. I've been writing about it all month at my Sprott Money articles. In 1980, Silver went from 10 to 48 in about four months and then back to 10 in two months. 2011, which you and I recall rather clearly, went from 18 to 48 in about eight months, and back down into the 20s in four months. Well, here we are. We first hit 48 back in early October, Andy, it's two months and we're still, like I said today, 53. It sure feels different.

Andrew Maguire (07:05)
Completely different. And I think the difference is, again, pretty much what we've just discussed about gold. It's the same in silver. The real actors are gone. And I think this open interest that's in there, it's very limited as to what they can actually rinse out because we've got physical markets being set in China. We work with the liquidity providers who

Craig Hemke (07:29)
Mm-hmm.

Andrew Maguire (07:33)
interact with the Shanghai International Exchange. really looking at what they're talking about, there's very little. It's interesting because I think what really sums it up, you and I were talking about backwardations a little while ago, while we have unprecedented backwardations, we've seen $3 backwardations in the past. They get arbitraged, one thing and another, but so close to first notice of the largest delivery contract of the year. We're seeing on last Friday, 60 cents, $3,000 per contract offside. Now we're still looking at 20, 30 cents. mean, ludicrous. first notice, through options expiry, into first notice, which is actually supposed to be tomorrow, but it actually happening today because it's...

Craig Hemke (08:26)
Goes off the board on Wednesday and trades first notice on Friday. Yep, end of the month.

Andrew Maguire (08:31)
Exactly. So ⁓ what it tells us, what it screams at us is, hey, you can't have a backwardation ⁓ coming into a delivery month where it's not telegraphing to you, it's mispriced, severely mispriced. And I think the reason for that, is because the LPMCLs CME relationship where they've got a footprint in both markets, haven't they? ⁓ The liquidity spigot is broken. It's completely broken. They don't have liquidity anymore to be able to pull this back. And what, you've got like 4 billion in SLV shorts? And some of that is, some of that, yeah, there's going to be some legitimate hedging in there, but 4 billion in short positions, that means that

Craig Hemke (09:02)
Mm-hmm.

Andrew Maguire (09:27)
If I own an SLV share, it isn't there necessarily, not if everyone wants it at the same time. And so I think it's screaming. I mean, to be honest, I think these guys are turning in on themselves. And like I said today in an episode, I think they're fighting like rats in a sack now, trying to short cover these massive shortfalls because nobody is there to help you anymore.

Craig Hemke (09:50)
Cheers.

Andrew Maguire (09:57)
And ⁓ literally, you can't print silver. You can print more money to buy more gold at a higher price. But there just isn't the silver there. It's just not there. So how the hell are they going to extricate themselves from this position? That's why they're in backwardation ⁓ into a delivery month. Where does that extrapolate out? ⁓ To me, it's 80 bucks. That's where it extrapolates.

Craig Hemke (10:08)
Yeah. Well, let's talk about that because again, if this time is different, know, gold consolidated below its all time highs for four years and then right at the end for about three months below 2100 broke out March of 2024 and it's doubled. Silver's kind of doing the same thing though, maybe a little bit above its all time highs. You mentioned that backwardation and what Andy and I are talking about is the spot price being higher than the front month future contract price, the future has been the December contract for COMEX Silver. And since October the 2nd, so now for two full months, that spot price has been higher and that just shouldn't occur. And if it does, it should occur for like a day and arbitrage should close that. Andy, the fact that it hasn't and that it persists, is this the new normal? And does this relate to what you're talking about? This kind of loss of leverage and control in that New York COMEX ⁓ pricing scheme.

Andrew Maguire (11:28)
Yeah, and I think silver is the Achilles heel of this same group of people. LPMCL are just the four banks that basically control the cartel, basically. And I think their liquidity is completely blown to smithereens. All the institutional guys, as we've just said, they've exited. And now you can still access as an institutional trader.

I can then go in and tag the SGEI gold corridor, which is opening up big time, can access an increasing number of volts, gold and silver that can be traded, with a real physical price that is much more stable than this unbelievable paper toxic mix that is thrown in.

Craig Hemke (12:23)
Right.

Andrew Maguire (12:27)
And it only serves. And I think the reason that we're seeing less volatility and the reason we won't see these kind of big sell-offs again, there's just simply not the liquidity to do so. It's gone. It's literally gone into physical markets. And if I'm a producer or a refiner or something, why would I want a price that's so volatile? I just want to know supply demand. People are owning a bar before it's put for sale.

People, you have to own it before you can sell it, which tells me that if you put it up for sale, that's a proper price. I don't care what that price is. It's the proper price. It's not a COMEX derived price. It's a physical price based on supply demand on the day, based on ⁓ purely on that supply demand. That is how markets are supposed to trade. And we've been gaslighted, or many people have been gaslighted into believing

Craig Hemke (13:06)
Right.

Andrew Maguire (13:25)
that this huge Comix volatility is the market. It just amazes me.

Craig Hemke (13:30)
Right.

Right. Right. And if we've all been waiting for that to change, that leverage that they apply gets stretched to a breaking point. We don't know what it is. All this talk about how much free float there is in London backing those games. And you always used to describe it to me that they just take a forklift and move silver from one side of the vault to the other. Right.

Andrew Maguire (13:46)
Mm-hmm.

won't sell it. They literally will not sell it. you remember years ago, we used to talk about we have a big client who wants to go to UBS and we say, can we have X amount? They say, no, that's all you can have. Hang on, no, we will pay you for it. It's just like, just give us a price. No, you can't have it. And it's like, OK. So then it tells us what the game is. game is make sure if I'm a seller, I'm UBS or JP Morgan.

I've got silver at this price, I don't want to sell anybody, but I've got to look like I'm making a market. So make sure that Samsung, Nokia and all these people get their silver because if they don't get it in time, they're going to come to the market and just buy everything that they can and the price is going to spike higher, their derivative positions that relate to these. The reason they're not selling is because their derivative positions attached to these physical bars.

multi-leverage, you know all about this, you've been talking about it for years with your clients. And it's like, well, of course, of course, it's mispriced. So I think they can't actually, they've lost the plot. There is literally nothing they can do. They might want to do it, but there comes a point now, and it's just really interesting. I met a guy just a short while ago.

who's just written a book, I think, Thousand Regions of Silver, and he's saying, do you know that it takes 20 tons of silver to make one gigabyte in photovoltaics, I say 20 tons of silver to make one gigabyte. And he said, thousands of gigabytes are required. He said, so there's the supply shortage, and now we've got another half a million ounces a year of

Stuff that doesn't include AI. I mean, where's this silver going to come from? These guys have dug a hole for themselves. It's a multi-billion dollar hole. There isn't the silver there to fix that hole. So the market is just simply going to run off with the SGE is going to sell that set the price. So if you have a mispriced position and it just happens to be a little bit backwardated at the moment, what happens when it is three, five, 10 bucks?

Craig Hemke (15:54)
Right.

Andrew Maguire (16:20)
difference and permanent. What happens to the to the comex then?

Craig Hemke (16:25)
Yeah. Andy and I, remaining time, I want to shift to gold. This has been such an interesting year in that this century, there have been four years where gold has had about a 25 % gain. One of them was last year. In all the previous instances, you maybe eeked out a slight positive gain the next year, if not, or you gave back 10 % of it.

Andrew Maguire (16:31)
Hmm.

Craig Hemke (16:55)
This year we've added on another 60 percent or whatever it is. Andy, what the devil's going on here? Are our institutions kind of front running what's coming in 2026 by continuing to be at higher? Is it physical issues? Is it central bank buying? Is it a combination of all this? What do you see in?

Andrew Maguire (17:14)
Yeah, absolutely. I think silver was just a little, was just the more obvious version of that. But yes, because it's hard to hide the footprints. absolutely. This is, as we know, central bank sovereign institutional buying. Now, all of a sudden we've got, for all the reasons you have the rot, the cockroaches running around in your treasury markets now. And I think people are looking at it and going, hey,

Yeah, I never did. I really had never had exposure to gold. so institutional traders, buyers are saying, I need some exposure. the problem is, and this is what's confusing a lot of people, the problem is a lot of these guys are not mandated to hold physical, especially the US guys, not mandated to hold physical. They can buy and sell shares.

and they can do it on the click of a mouse. They are now, as we know, we're talking about the 40, 2020. So we're looking at a of people coming out and saying 20 % allocation to gold. Hey, can you remember any of this, I mean, it was like if you wouldn't even have 1%, you wouldn't have a half a percent.

Craig Hemke (18:28)
My goodness. Right. You're a lunatic to even bring it up.

Andrew Maguire (18:35)
Exactly. So now you've got all these institutionals. Now, the interesting thing is, is they can't necessarily buy physical. They're buying the ETF. Now you and I are great. We don't believe in the last place I want to go and buy gold is an ETF. However, they have no choice. So, but because they're buying for keeps, they're buying, they're not going to take delivery. They are going to own that position and it's sticky. They cannot be rinsed. You cannot say, in fact, you drop a price down, they'll buy more because they're buying more every day because they're moving from zero allocation to 20 to 25 % and more in some instances for obvious reasons. So therefore, people look at it and go, ⁓ look, there's all this open interest building in the ETFs. It's not speculative. This is sticky stuff.

Obviously, the physical market is all we care about, but it actually is forcing, even though there's shorting going on in the GLD and one thing and another, it's still a physical market. the physical supply demand is being set outside of the LBMA ring fence. so therefore, it is back to the same as silver. If I have a bar,

Craig Hemke (19:56)
Mm-hmm.

Andrew Maguire (20:05)
and I have to own it before I can sell it, I need a real price. I want a real price. So I will only sell it to you and the more you want, the more I want.

Craig Hemke (20:19)
Right. So Andy, given the pricing scheme and the structure of the silver market is the same way they structured the gold market, is silver kind of the canary in the coal mine here in terms of the leverage being finally overstretched and getting ready to snap? If the silver backwardation persists into 2026, do think we'll start seeing that in gold too?

Andrew Maguire (20:44)
Yeah, because the January contract is already at par. It shouldn't be. mean, so you've got backwardations in December. Although the next liquid contract is March, but when you look at, yeah, silver, sorry. But then if you look at January, that's already in technical backwardation. So it is happening. It is happening already. And now we're talking about 2026.

Craig Hemke (20:56)
for silver Teetering. Mm-hmm.

Andrew Maguire (21:14)
and they're not even done. I think this morning I looked, there was still, I think, 2,000 odd tons of silver warrants floating around in there. And the thing is, there's a lot of people that I know and who saying, well, yeah, we bought and we're taking delivery. We are taking delivery. Why? it's the only source of physical that I can get to my limit.

Craig Hemke (21:23)
Yeah. Mm-hmm.

Andrew Maguire (21:43)
my actual limit. can buy that. And so if that's the only source of physical, you're going be banging on that back door, out it goes. how can that possibly be? And that's mispriced. It's so grossly mispriced. And furthermore, even if it was more expensive, people would still be lining up to get it because there's not enough on offer to meet all the demands. So it is a toxic mix. And as I say, that's why I think these guys are like rats fighting in a sack.

Craig Hemke (22:21)
Mm-hmm. So Andy, we wrap up and like I said, here at the end of November, we got one month to go. It's seasonally a very strong period for gold and silver in the mining shares. ⁓ The next breakout is going to really catch a lot of people. mean, like you said, it's been a really steady accumulation over the last couple of years of gold moving up in 20 % surges and then, you know, these sideways consolidations. And here comes another one. We're probably sitting on the doorstep of another. I would suspect you are pretty bullish.

for 2026. ⁓ But in my final question, what could upset the apple cart? A ⁓ major economic slowdown that would ease the pressure on silver or maybe ⁓ stopping the central bank reversing some of the central bank gold demand? What are some things that could potentially ⁓ erase some of this really bullish scenarios for these metals?

Andrew Maguire (23:16)
Well, I think as far as gold's concerned, you've got two, for all the reasons that you've just said, what if there was a black swan event? What if the things that there are cockroaches running around. So if institutional buyers are in there and then we forget everyone else in Asia who views it differently to people in the West have, but need that exposure, then obviously as far as gold's concerned, then I...

Craig Hemke (23:26)
Yeah.

Andrew Maguire (23:46)
they've still got to allocate more and more and more. The price is inelastic. It doesn't matter. They're just going to dump more dollars and get that exposure because we'll go out of risk into cash and into gold. So that demand there is competing with Asian demand and it's setting a physical price. I can't see, I honestly believe $8,000 gold

People say, oh, how can you get? Well, OK. Well, we figured 4,500 gold by the end of this year, and that was only at 2,900 or whatever it was. I mean, you start breaking some of these barriers and the race starts to really accelerate. Now, as far as silver's concerned, how? I mean, we've already talked about a supply deficit. Now you're talking about the AI boom. So even if there's a slowdown,

Craig Hemke (24:25)
Yeah.

Andrew Maguire (24:43)
You have to look at the market as overvalued as it may be, AI is going to require a lot of silver. Photovoltaic, we just talked about photovoltaic supply. Again, we're talking about 20 tons for each gigabyte. Everyone is producing, everyone wants green energy. Not even talking about AI at this point.

Craig Hemke (24:53)
Mm-hmm.

Andrew Maguire (25:13)
I think you've got so much demand in there into a supply shortage, which is not factored into the price. And we've still got a gold price ratio that is so far away from God's ratio that even if it was to come back down to the 30s or, I mean, there's your prices, there's your 80 or 140 bucks. mean, you just...

Because how can that that ratio isn't a God ratio. It's a synthetic ratio. It can only be less synthetic. It has nothing to do with reality. So when that when this whole thing levels out because physical markets will determine that price, that price will wash back into where the crooks are who have derivative bets that are based on bets made.

Craig Hemke (25:50)
It's a leverage ratio. Yeah. Yeah.

Andrew Maguire (26:13)
years ago and have been doubling down and figuring, well, it'll get better. It ain't got better. It's broken. I think I can't see why. It's not just being optimistic here. It's just a question of how high will it go before real market, real bullying comes to on offer to actually meet the actual demand.

Craig Hemke (26:38)
Yep. And you and I and everybody listening can help impact that scenario ⁓ by acquiring our own metal and taking it out of those talons of those rats ⁓ that you call them, the bankers and everybody else that operates these exchanges. And we'll find some true price discoverer, definitely trending in that direction. Andy, you do great work almost every week with your Live from the Vault podcast tell everybody where people can find those because every Friday it seems you've got a great new guest and great new analysis ⁓ for everybody.

Andrew Maguire (27:16)
Yeah, we do a market update every two weeks. So we really drill down into all the charts and where the footprints are and the drivers and who's behind it and one thing and another. then we always have a guest. And you've been a guest many times too. On every alternate week, we have a guest like yourself or somebody else and really just get their opinion of everything.

And it's always useful to get multiple opinions about what's going on so that other people, and the whole object of this, as much as you do, you do with your site that you do and you represent Sprott here. He's a very, very honest and integral guy that I would always, always join in on a conference with him. He's truly, truly respectable man. And his organization is.

So I would, you know, basically, you know, this it is about an amalgamation of information. It's about education. It's about giving people information to make their own choices. And if they don't believe in something great, no problem. But at least you're making a decision that you don't want to do something you would do. So we're just saying, hey, this is what we're doing. ⁓ Hey, what do want to do yourself?

Craig Hemke (28:40)
go to Google or just straight to YouTube, search live from the vault or Andrew McGuire Kinesis, something like that will get you to that site, to their site. You can subscribe so you don't miss any content. And as we wrap up here, I will urge everybody to subscribe to this Sprott Money site. ⁓ Andy just mentioned the old man. I just was ⁓ texting with him this week. I have confirmed that everybody's favorite retiree,

Will join me in a couple of weeks to discuss kind of a year in review 2025 and look ahead for gold, silver, and the mining shares. You're not going to want to miss it. We haven't recorded it yet, but I can already tell you, you're going to want to make sure you watch. So hit that like or subscribe button on whatever channel you've been watching this video so that once we publish that sometime mid to late December, you get to see it as soon as it's put up. In the meantime, though, we'll wrap.

November up. It's been a fun month and this has been a fun conversation. Andy, thanks so much for stopping by and sharing some of your valuable time with us.

Andrew Maguire (29:41)
So that's you brother, look forward to seeing you soon.

Craig Hemke (29:43)
Hope we can do it again soon. And from all of us at Sprott Money, SprottMoney.com. Thanks for a great month of November, but keep an eye on this site for more information to come as we begin to finish up 2025.