I’m undertaking a 1000-day reinvention project, blogging here daily to track my progress. In Friday Flash, I share an epiphany or aha moment from the past week.
I don’t use the word shenanigans very much, but it seems appropriate for this blog post, as I share a theory that success in investing today — at least if you are not going to just buy-and-(pray)-and hold is to understand what’s going on behind the scenes with big players, some of which could be called shenanigans.
Where the word “shenanigans” comes from
Shenanigans means deceitful tricks or high-spirited mischief. It originated in California during the 1850s gold rush (so perhaps appropriate to use it to begin a blog post that will talk about precious metals spoofing and other manipulations).
There’s debate about where it came from. Maybe it derived from the Spanish word chanada, a shortened form of charranada meaning “trick or deceit.” Perhaps from the German Schenigelei, argot for work or craft, or the related German slang verb schinäglen. The most popular theory (according to Gemini, who you can’t really trust) is that it is linked to the Irish Gaelic sionnach meaning fox, implying fox-like trickery. The verb sionnachuighim means “I play the fox.”
The treasury proposes oil shenanigans
Treasury Secretary Scott Bessent suggested last week that the U.S. Treasury may directly intervene in the oil futures market, selling front-month oil futures contracts, effectively shorting oil to push those front-month futures down. Their goal is to combat price increases that have broken out in the wake of the ongoing conflict in the Middle East
Front-month futures are contracts to buy oil with the nearest expiration date. They generally have the highest trading volume and liquidity. They give a read on market sentiment as they reflect the most immediate supply and demand for oil.
The WTI crude oil front month future this morning stands at over $85 a barrel, whereas back on February 6th it was below $65. That’s an over 30% increase, which could lead to about a $0.48 per gallon increase in the cost of gasoline, based on the 2.4 cent rule. This rule says that if the price of a barrel rises by $1.00, that represents a raw material increase of about 2.4 cents per gallon, because there are 42 gallons in a single barrel of oil ($1.00 / 42).
Gas station owners usually price their fuel based on “replacement cost” — what it will cost them to refill their tanks tomorrow. That’s why gas prices often spike within 24 to 48 hours of an oil rally. Before the spike national average gas was around $2.89 in February. AAA reports that the national average is now up to $3.25, an increase of 36 cents.
If the conflict in the Middle East escalates, oil could hit $100 a barrel or more as some banks are now forecasting. This would mean $3.85 to $4.00 gas very quickly.
The Treasury is proposing to intervene in the paper market, and eliminate a geopolitical premium that, apparently, they think is just due to panic and not reality. As some observers note, lowering prices during a supply crunch doesn’t help to equilibrate the supply and demand. It subsidizes consumption while disincentivizing production and makes the imbalance even worse.
However, as a way to cool off speculation it has some benefits. EndGame Macro writes on Twitter:
The Treasury is basically trying to treat oil like a financial panic premium, not a physical shortage. The idea is simple. When the market is in shock, futures can overshoot because everyone piles into the same trade at once. If the U.S. government steps in as a credible seller in the front of the curve, it can scare off some speculative longs, cool the momentum, and buy time before higher pump prices fully hit voters and the economy. It’s an unusual attempt to influence energy prices through markets, not barrels, and it clearly lines up with Treasury Secretary Scott Bessent’s trading background and Treasury’s ability to operate through tools like the Exchange Stabilization Fund.
But, the EndGame Macro notes, while this can dampen speculative frenzy and reduce the risk premium, it doesn’t do anything to address the underlying cause of the rise in the price. If there is truly a supply shortgage, being short puts a paper bet up against physical demands for delivery. The Treasury’s current plan means they are betting prices will fall. They sell paper contracts, but might have to settle with physical oil that costs a lot more than they will get for the barrels.
How do short squeezes work?
This is all kind of new to me, so let me go through the basics of short-selling oil futures contracts, for my edification and (if anyone is reading!) yours.
Being “short” means you have sold a contract to deliver oil at a certain date in the future. When you sell the contract you don’t receive cash for the sale today. You put up a good-faith deposit — the margin. The buyer does as well.
So say you sold a contract to deliver 1,000 barrels at $85 on the expiration date. You might pay a deposit of around $5K to $10K to open the trade. Every day at the market close, the exchange looks at the price of oil. If oil drops one dollar, your account is credited $1,000. If oil rises a dollar, your account is debited $1,000 immediately. You realize your full profit or loss when you close the trade or when the contract expires.
The Treasury seeks to drive the oil price down by using taxpayer collateral (the Exchange Stabilization Fund) to sell front-month oil futures. If the price keeps rising because of a true shortage — where actual oil purchasers are bidding up the price of oil — the Treasury has to put more and more margin cash every day to keep the short position open.
A short seller’s potential loss is theoretically unlimited, because there is no cap on how high a price can go.
Silver market shenanigans
Having succeeded wildly with my gold investments last year, I decided to try silver too, gold’s baby sister. My timing was off, as I got pulled in during the parabolic run up. The good thing about getting in then (and adding to the position after, when the price was much lower) was that it made me very, very interested in the silver market. It’s been a learning experience for sure. I’m still underwater on my position, but not by much, and I’m thinking that over six to eighteen months, precious metals will do well.1
The silver market is very small, which allows relatively tiny amounts of capital to create outsized price impacts. The gold market is roughly 6.5 times larger in terms of annual mining value.
Silver paper (futures contracts, some ETFs) vs physical silver are in close relationship. Most “price discovery” for silver — the setting of price to equilibrate supply and demand — takes place on the COMEX (Commodity Exchange) through futures contracts, not through the buying and selling of physical bars.
In the silver futures market, you can control a massive position with a margin deposit of only 15% to 18% of the contract’s total value. Daily trading volume on the COMEX can reach 600 million to 750 million ounces while the actual physical inventory in exchange warehouses often sits below 150 million ounces. Historically less than 3% of these contracts result in someone actually taking delivery of silver. Most contracts are settled in cash. This allows banks to sell (and short-sell) “paper silver” that doesn’t exist, creating an illusion of abundant supply.
Large players can use a variety of strategies to move the needle. With spoofing, a trader places massive sell orders to create the appearance of a market crash, then cancels them before they execute, buying up the metal at the lower price they just triggered. With the “10 am dump,” manipulative selling occurs during liquidity vacuums, when fewer traders are active, allowing a modest amount of selling to generate a disproportionate price drop. With stop-loss hunting, algorithms can be used to target stop-loss levels set by retail traders. Once those levels are hit, a chain reaction of automated selling is triggered, amplifying a small downward move into a collapse.
In 2020, JP Morgan was assessed a record $920 million fine for spoofing and manipulation in precious metals markets. Recently, trading firm Jane Street has been suspected of manipulating the silver market after amassing a $1.3 billion position in the iShares Silver Trust ($SLV), a fund holding physical silver. This position would allow them to manipulate the silver market quite easily.2
Is there a physical shortage in silver?
But futures market contract tricks can only last so long against actual physical shortgages. For March, demand for physical silver delivery has risen to almost 30 million ounces, out of a total available of just 81 million ounces. This demand is far higher than usual.
Of course silver exists in other inventories: COMEX has both registered (available to settle contracts) and eligible (silver that is privately held but could be used to settle contracts if it is switched to registered). PSLV, the Sprott Physical Silver Trust, holds 217M ounces for investors in the trust. The LBMA (London Bullion Market Association) holds 392 million ounces. And SLV has 513 million ounces. All told, there is almost 1.6 billion ounces of physical silver visible in these various places. But in most of those places it’s not being held in order to be delivered physically. It’s being held as a store of value.
Silver is both a precious metal — valuable because we all agree it’s valuable — and an industrial metal — valuable for its uses in solar panels, data centers, weaponry, and electric vehicles. Palladium and platinum are similar.
A price forecast for silver
In a recent report and podcast episode on silver prices in 2026, Greg Shearer, head of Base and Precious Metals Strategy at JP Morgan, shared some important realities about silver. He forecasts a price of $81 an ounce in 2026, a big increase from the 2025 average of roughly $40 an ounce, but below where silver is right now (it closed near $85 an ounce yesterday).
Shearer says that silver has been in a structural deficit since 2021, with demand outstripping supply by 100 million to 250 million ounces annually. Because about 70% of silver is a byproduct of copper, lead, and zinc mining the supply doesn’t increase just because silver prices go up. It depends on demand for those industrial base metals. For years, above-ground stocks have cushioned the deficit but those reserves have been drawn down significantly.
In the solar space, silver has gone from being 1.5% of a solar panel’s cost to over 30%. Solar panel manufacturers are accelerating plans to use less silver or substitute it entirely with other materials. This could permanently erode long-term industrial demand.
With silver, there’s not significant central bank buying, unlike with gold. Silver lacks the dip buyers that provide a price floor for gold. Many investors look to the gold-to-silver ratio (GSR) to determine whether silver is fairly valued vs gold. This ratio dropped below 50:1 during the recent parabolic rise in silver, but has retreated back towards 65:1, leaving JP Morgan apprehensive about silver compared to gold. Silver is much more volatile than gold, seeing 10 to 15% moves for every 1 to 2% moves in gold, offering both opportunity and peril for investors.
The paper illusion vs. the physical reality.
Both the oil and silver stories show attempts to use paper metal to mask physical reality.
In oil, the Treasury is begging that high prices are just a panic premium that they can trade away. In silver, firms like Jane Street or the big bullion banks use the massive leverage of the COMEX to create price washouts that shake out retail investors. These are shenanigans in action.
As Greg Shearer from J.P. Morgan pointed out, you can only thrift and substitute so much before the structural deficit wins. Whether it’s a gas staion owner pricing for the cost of tomorrow’s delivery or a solar manufacturer needing silver paste for a circuit board, the physical world eventually demands a settlement that paper contracts can’t fulfill.
Where does this leave precious metals investors?
Here’s what I’ve learned with my precious metals investments:
- Volatility is the tax you have to pay on high returns: If you want silver’s 100%+ upside, you have to be willing to stomach the 20% “Warsh crashes” and 10 am Jane Street washouts. These don’t mean the thesis is broken. They are part of the mischief that’s being used to move silver from weak hands to strong ones.
- Understand the sister act: Gold provides the floor and silver searches for a ceiling. While central banks hoard gold to protect against a weakening dollar, silver is a high-beta play on the future of energy and AI.
- Patience (and risk management) is the only hedge against shenanigans: Manipulations like spoofing, 10 am dumps, and stop-loww hunting are short term tactical plays that won’t work in the long run, if the silver supply deficit is real.
I expect the shenanigans to continue to move the price in the near-term while the physical deficit drives the price in the next six to twelve months. I’m keeping my eyes on the warehouse inventories and the percentage of contracts that go to physical delivery. These suggest the supply deficit is real.
- Why? Because wars historically cause inflation. They disrupt supply chains (like the supply of oil through the Strait of Hormuz), increase government spending, and reduce the production of consumer goods. Given the large and increasing U.S. federal debt, we were already facing an inflation risk. It’s only increased with the attack on Iran.. ↩︎
- Jane Street is an “authorized participant” for the iShares Silver Trust (SLV) which means they have a legal agreement with BlackRock, the SLV provider, to create shares of the ETF when demand is high and redeem shares when demand is low. This is a required activity to keep the ETF price in line with the actual price of silver. But SLV is so massive that it is a driver of the price of silver too. ↩︎