Buying silver as Kyle Bass makes the case for hedge funds

 

Up to this point, no major or big money has entered the silver market or stood for delivery in a significant way outside of outspoken Toronto-based silver ETF manager Eric Sprott.

Yet it is rather hard to imagine why they would not be joining Sprott, with QEs stretching to infinity, fiscal cliffs, debt ceilings, European financial crises, and now Germany no longer trusting its precious metal "custodians" as it repatriates its gold.

Add these factors to the still extreme risk of bank asset deterioration from public debt servicing constraints, the excessive concentration of deposits held in the too-big-to-fail financial institutions, and the risk of systemic contagion resulting from just one derivative-generated event, and the market has plenty of reasons to be bullish on silver.

Why are big funds not buying silver?

Presumably, many of the big investors have avoided entering the silver market because they either do not know about or understand these factors, or if they do, they do not want to be the ones blamed for pushing the tottery financial markets over the edge.

Furthermore, given the relatively small amount of above-ground investment grade supply of silver, it would be difficult to accumulate a large position without setting the market on fire.

Alternatively, they may fear delivery issues, especially given the tightness of demand. They may also be concerned that industrial users will be given preferential treatment in a physical squeeze.

Other concerns may include the fear of volatility and degree of irrational pricing behavior in the silver market that makes technical analysis particularly challenging.

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