Historically squeezed multiple times, will silver be the next cocoa?

The soaring gold price has triggered a domino effect. Since March, the increase in silver has even exceeded that of gold. The spot silver price has risen by more than 20% so far this year, far better than the 15.4% increase in spot gold.

On April 13th, macro analyst Simon White pointed out that the silver market is much smaller than the gold market. The trading volume of silver futures contracts is larger relative to its annual physical supply, similar to cocoa, making it susceptible to speculative activities and market sentiment, leading to drastic price fluctuations.

Due to poor cocoa bean harvest recently, Ghana needs to postpone shipments. Last week, the New York cocoa futures price hit a historical high of $10,156 per ton. Some traders predict that cocoa futures may surpass $20,000 per ton later this year.

Simon White believes that based on the similarities between the silver and cocoa markets, there is a possibility of a large-scale increase in silver prices similar to cocoa prices. In the late 1970s to early 1980s, the Hunt Brothers manipulated the silver price by buying a large amount of bank loans to purchase bank-guaranteed silver futures, hoping to control the supply of silver in the market.

By 1974, the Hunt Brothers already held 35 million ounces of silver contracts. Over the next 5 years, they actively bought silver futures. By the end of 1979, they controlled 53% of silver stored at the New York Mercantile Exchange and 69% at the Chicago Mercantile Exchange, owning 120 million ounces of spot silver and 50 million ounces of futures.

Under the control of the Hunt Brothers, the silver price continued to rise. By January 17, 1980, the silver price had risen from $4 per ounce to $48.7 per ounce. On January 21, the price had reached an all-time high of $50.35 per ounce. This speculative frenzy caused the market supply and demand situation of silver to be severely disconnected from actual production and consumption, with market prices deviating significantly from its value.

Simon White explained that compared to cocoa, the trading volume of silver futures contracts in the silver market is larger relative to the actual supply. When demand surges (such as investors buying a large amount of silver futures), the silver price may rise rapidly:

For example, in 2011, the silver price experienced a massive rebound, driven by factors such as loose monetary policy, the downgrade of the U.S. credit rating, etc., stimulating market demand. However, the market supply could not meet this demand.

Simon White pointed out that the rebound in U.S. inflation is further stimulating market demand for silver. In recent weeks, the amount of silver holdings has sharply increased, possibly because latecomers seeking inflation hedges believe they have missed the opportunity in gold. Compared to gold, silver is still very cheap, which may drive silver to experience a significant increase in price similar to cocoa

UBS's previous research report pointed out that many investors were caught off guard by the speed and magnitude of the rise in gold prices. At this time, silver provides investors with an opportunity to catch up. While the supply and demand of silver itself is indeed tight, it is not enough to support a sharp rise in silver prices. However, in the case of soaring gold prices, silver, as a cheaper and more volatile alternative to gold, naturally attracts investors' favor.

Peter Spina, founder and president of investor websites GoldSeek.com and SilverSeek.com, recently stated that silver has the "momentum and fundamentals" to push prices above the technical resistance level of $28.50 per ounce, and then $30 per ounce. He expects silver prices to challenge $30, and only after breaking through this level will there be a significant price retracement