When silver surged to multi-year highs, veteran bullion dealer Andy Schectman didn\u2019t see just another price move\u2014he saw a rupture in the foundation of the global metals market.<\/p>\n
In a wide-ranging\u00a0interview last week<\/a>, Schectman argued that what\u2019s happening now represents\u00a0the physical market finally \u201ccalling the bluff\u201d of decades of paper manipulation.<\/strong><\/p>\n \u201cI\u2019ve never seen anything like this,\u201d he began, emphasizing that this was not mere volatility. \u201cBackwardation\u2026 shows extreme delivery stress\u2026 It\u2019s the market exposing the shortages of physical silver, the frailty of the paper promises.\u201d<\/p><\/blockquote>\n For Schectman, \u201cbackwardation\u201d\u2014when spot prices exceed futures prices\u2014isn\u2019t just a technical quirk. It\u2019s the alarm bell that the supply of real metal is running thin. He believes the era when investors could comfortably rely on \u201cpaper silver\u201d derivatives is ending.<\/p>\n \u201cPeople have accepted paper promises for a very long time and I think that\u2019s coming to an end,\u201d he said. \u201cThis is decisively bullish for silver and other precious metals.\u201d<\/p><\/blockquote>\n When asked what\u2019s actually driving this rupture, Schectman pointed to signs of stress that only appear when market structures break down. Spot prices are now higher than future delivery prices\u2014something, he said, \u201cvery rare\u201d in silver and \u201ca signal of desperate demand.\u201d Lease rates in London, normally a fraction of a percent, \u201cjumped up over 39%.\u201d The picture he painted was one of panic beneath the surface.<\/p>\n \u201cIn London they have a 140 million ounce float, yet they\u2019re trading 600 million ounces a day\u2026 There\u2019s over two billion ounces in paper claims out there on a float of 140 million.\u201d<\/p><\/blockquote>\n In Schectman\u2019s\u00a0view<\/a>, London is the epicenter of a quiet crisis, where years of \u201crehypothecation\u201d\u2014multiple claims on the same bars\u2014are being exposed. \u201cIt\u2019s being called under the carpet,\u201d he warned.<\/p>\n Pressed on what happens when this paper structure breaks, he compared it to a run on a bank. When short sellers can\u2019t find metal to deliver, and borrowing costs soar, margin calls start hitting.<\/p>\n \u201cYou\u2019re beginning to see margin calls\u2026 they\u2019re not able to get the silver to cover their position,\u201d he said. \u201cThat\u2019s when things begin to get very, very, very interesting.\u201d<\/p>\n