Your host Tom Bodrovics and guest Eric Yeung, an investor and former contract manufacturer in China, delve into the complexities of the current silver market. Yeung highlights the deliberate complexity of the system, designed to obscure understanding, and shares his insights gained from extensive research.

The discussion begins with the London Bullion Market Association (LBMA) and its reported shortage of physical silver, with Yeung citing sources indicating a drastic reduction in the LBMA’s free float of physical silver from 5,000 to 0 metric tons in just two weeks. This scarcity has led to unprecedented events, such as the SLV ETF temporarily halting share redemptions for physical silver and the spike in lease rates, which Yeung interprets as banks refusing to lend or lease silver bars. Yeung suggests that the system’s freeze is due to one of the major banks ceasing to lend physical silver, causing a domino effect. He posits that the current price action and the dwindling free float are key factors in this market stress.

The conversation also touches on the role of the US dollar in this equation, with Yeung noting that fluctuations in the dollar’s value can affect the market due to its role as the funding cost for exchanges and bilateral contracts. The exchange for physical (EFP) mechanism and ETFs are discussed as integral parts of the system, with Yeung explaining how ETFs serve as physical metal reserves for bullion banks. The potential outcomes of the current situation are explored, with Yeung presenting a best-case scenario of an orderly unwinding of bullion banks’ short positions and a gradual price increase for silver. The worst-case scenario, however, involves a technical default by the LBMA, leading to a loss of confidence and a potential shift in the global pricing mechanism for precious metals to exchanges like the COMEX and the Shanghai Gold Exchange (SGE).

The episode also touches on the potential for central banks, including those in the BRICS countries, to add silver to their reserves, using it as collateral for international trade, similar to gold. Yeung believes this shift is part of a broader move away from the US dollar-dominated system, with China and other global south countries developing a new monetary order based on gold and silver collateral. The episode concludes with Yeung advising listeners to own physical gold and silver as a hedge against fiat currency risks and suggesting that miners could be a viable alternative if physical metals become scarce.

Timestamps:
00:00:00 – Introduction
00:02:13 – LBMA Free Float Decline
00:04:21 – SLV Shares Borrowing Issues
00:06:55 – Exploding Lease Rates
00:07:10 – LBMA System Freeze
00:10:10 – Backwardation and Arbitrage
00:12:50 – Risks to LBMA
00:13:20 – LBMA Containment Measures
00:16:40 – Global Demand Vectors
00:21:10 – Dollar Liquidity Impact
00:24:10 – EFP and ETF Roles
00:26:50 – Best Worst Case Scenarios
00:29:20 – Central Banks Adding Silver
00:34:40 – New Monetary Order
00:47:00 – Concluding Thoughts

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