The London Source continues:

“You have to remember that BlackRock sponsors SLV and I don’t believe they will let anything happen to tarnish their good name.  It would reflect badly on BlackRock if in fact SLV did not contain the physical silver to back up the shares, so the Asians will be successful in draining physical silver directly from SLV.  The bottom line is they are comfortable with BlackRock being involved in the ETF SLV.

In the end, BlackRock will have to ensure that the silver ETF makes good on redemptions from SLV.

Another complicating factor is that there are currently 16.12 million shares short on SLV.  This is an increase of almost 2 million ounces over the prior reading.  In other words BlackRock will also have to make sure that this silver which has been borrowed will be returned.

We have serious backwardation, a supply shortage, short interest growing on SLV and now we have the Chinese waking up to the fact that there is metal in SLV and saying, ‘let’s go get it.’  Let’s not forget the paltry inventories on the Comex.  Any short would have to be frightened by that data. 

There are two options left for the shorts, one is to naked short the heck out of this market in an attempt to drive the price down.  But if they decide take this option it will worsen their position longer-term.  The other option is to capitulate and let the price of silver rise in an attempt to let the silver market get into equilibrium.”  

It will be very interesting to see which option the shorts take here, but for now the wind is in their face and we will look to see if silver can clear $31 on good volume.  The London Source closed with this question, “If you were a for-profit trader yourself and you were short here, what would you do?”

Eric King

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