‘Trading Sardines’ and Paper Silver

There is an old trading story about sardines, and it’s surprisingly relevant to silver today.

During the gold rush in the late 1800s, miners were striking it rich in remote parts of Alaska.

But supplies were scarce and expensive. Eventually a large market for basic goods developed, and some suppliers spent more time trading food for profit rather than selling it for consumption.

Sardines were in high demand, and the price of a can supposedly soared 10x at one point. A micro-bubble developed. It got so bad that people were mostly trading the tinned fish rather than eating it.

One day, a hungry miner paid through the nose for one of these cans. He opened it and was surprised to find horribly rotten fish. He stormed over to the traders’ shop, and demanded to know what was going on.

The trader told him, “You fool! Those are trading sardines, not eating sardines.”

Paper vs. Physical Silver

Today there is a dynamic in silver markets somewhat similar to the old sardine story. Paper silver contracts like those traded on the COMEX exchange outnumber physical silver by perhaps 200x.

In other words, there are a lot more silver IOUs floating around than real bullion. With the price of silver rising, more traders are now “standing for delivery”, refusing to accept cash settlement and demanding the actual metal.

In the tinned fish analogy, trading sardines would be paper silver, and eating sardines would be physical metal.

Rumors that this discrepancy would explode silver prices higher have been floating around for decades.

Ted Butler was a leading voice in this community. Ted had 25 years of commodity trading experience at big banks like Merrill Lynch, so he knew futures markets well.

He was a bulldog who insisted that the price of silver was being artificially suppressed. Specifically, he pointed to bullion and investment bank Bear Stearns, which was purchased by JPMorgan during the 2008 financial crisis.

Bear Stearns had a massive silver short position which JPMorgan inherited. And Ted pointed to massive short positions like this as one key tool in the banks’ efforts to contain the price of silver.

Ted made the case for buying silver eloquently in one of his many interviews:

“The best reason to buy silver is that it’s artificially manipulated to the downside, and we know from history that manipulations have to end someday. And one day, when they do end, they end abruptly and violently. If it’s a downside manipulation like we have in COMEX silver, then the price will truly explode. You couldn’t find a better reason to buy silver than because it’s manipulated.”

Sadly, Ted Butler passed away in June of 2024. He didn’t get to see this incredible bull market. But his work alerted many thousands of investors to the explosive potential of silver.

And now, his thesis appears to be playing out in real time.

An Explosive Move

Over the past few months, silver has rocketed higher. Since the beginning of September, the price has run from $40 to a recent high of $64. Currently prices are cooling a bit, trading around $62, but this is a perfectly healthy correction.

Part of the explanation is simple supply and demand. India is gobbling up silver for investment purposes. China is devouring it to build solar panels, and Asian investors have developed a taste for it as well.

Here in the U.S., investors are finally waking up to the silver story.

With the price jumping, industrial users are stockpiling in case it continues, and more investors are getting on board.

Meanwhile silver inventories at the COMEX, Shanghai, and London’s LBMA are dwindling. The silver squeeze is in full effect.

In the near term, a price correction wouldn’t be a bad thing. It would cool things off for a bit, and allow for a more sustainable move upward.

But if this truly is the end of a massive scheme to suppress the price of silver, we may not get that pullback. If Ted Butler and others were right, this move could get even more explosive.

My plan remains the same. Hold strong.

We’ll keep digging into this silver price suppression story and see if we can get to the bottom of it. There are many other angles to explore. Look for more on that next week.