Jim Hunter: Is a Silver Short Squeeze Possible?
Tom welcomes an experienced commodity broker and veteran of the futures business Jim Hunter. Jim has 35 years of experience in the industry.
Jim begins by explaining how futures markets function and defines many of the terms involved in these markets. Then, Jim describes how longs and shorts operate in futures, along with options, hedging, and how the delivery process.
There used to be numerous exchanges, but today with modern technology, many have been consolidated into a few exchanges. Many in North American are operated by the CME Group or the Chicago Board of Trade.
There are three different types of traders, with the largest being bullion banks. These banks have supply and contracts with mines or suppliers that they need to sell. They tend to be short because they are delivering and hedging metal for profit. Another large long trader might be a car company or a green energy company. Again, these might need metal and might regularly take possession by going long for manufacturing. Lastly, are the speculators of various from large hedge funds to small investors who may take either position long or short.
Margin requirements are important and they change based on market volatility and risk. As prices for a commodity rise, the margin risks increase, and thus these requirements must increase. Margins are a function of recent volatility in the market and are necessary to ensure that a contracts counterparty gets paid.
Jim explains instances where manipulation has occurred in these futures markets. He gives an example with the Hunt Brothers and why changes in the rules unfairly cost them their positions. There have been other times when rules have changed at unusual times, resulting in unfair fluctuations in the markets in which various parties could benefit.
Jim doesn’t find the idea of extra paper claims to have any basis. Total open interest has nothing to do with the commodities in the warehouse or vault. He argues the number of contracts has no bearing on the delivery process.
The Wall Street Reddit Movement attempted to cause a short squeeze on the silver futures market. The movement was able to get prices to rise back in February for a brief period. Short squeezes are the wrong term for these, as it would take a lot more demand to deplete the available supply. Higher prices tend to bring more supply to the market.
Silver does have a lot higher to move as he considers it undervalued based on the amount of global money printing. In addition, several countries are buying gold. Silver is an excellent savings account, and you can make money if you hold it.
Time Stamp References:
0:00 – Introduction
1:08 – Commodities & Futures
11:44 – Other Exchanges
15:26 – Fees & Rolling Contracts
22:18 – Deliveries & Reports
27:29 – Open Interest
31:08 – Shadow Contracts
35:10 – Three Trader Types
41:30 – Leverage & Margins
47:02 – Futures Manipulation
51:32 – Ethics and Legality
54:03 – Paper Claims & Contracts
56:26 – Dollar Volatility & Rates
1:01:10 – Misconceptions
1:05:28 – Force Majeure Default
1:07:57 – Silver Short Squeeze?
1:13:00 – Be your own central bank
1:15:30 – Concluding Thoughts
Talking Points From This Episode
- Understanding and defining the futures markets.
- Types of traders and contracts.
- Futures manipulation and evidence of unfair practices.
- Clearing Misconceptions in Futures Markets.
Force Majeure Event:
Nate Fisher YouTube: https://www.youtube.com/watch?v=KWUu2WdqPOg
James Hunter is a Registered Commodity Broker with The National Futures Association and a Branch Manager with Allendale. He has over 35 years of experience in the futures and commodities space. Jim specializes in covered calls and assists clients in the futures markets. If you have any questions, he would be happy to answer them at his e-mail or Twitter above. Jim cautions that Futures and Commodity markets carry risks due to leverage, and they may not be suitable for all traders.
Jim is a resident of Tampa Bay, Florida.