Many analysts have described the rise in silver prices using traditional market dynamics, citing increasing tech demand and reduced capacity for producing more as causes. However, Marketwise founder and financial editor Porter Stansberry has considered the phenomenon from another point of view, linking it to an upcoming destruction of the U.S. banking system.

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Stansberry states that real banking investors, like Warren Buffett and Ray Dalio, have been shedding bank stocks since 2020, selling millions of dollars of Bank of America, UBS, Wells Fargo, JPMorgan, and Goldman Sachs shares. The reason behind these actions is a one trillion dollar-deep hole in commercial banks’ balance sheets.

He explained:

One-third of the reserves of our biggest banks are deeply “underwater.” That’s because they bought $2 trillion worth of long-term bonds (and mortgages) at interest rates around 1%.

According to his analysis, the value of these assets has gone down due to the rising interest rates causing the fall of institutions like Silicon Valley Bank, Signature Bank, and First Republic Bank. However, instead of dealing with the root problem, the Federal Reserve expedited a loan program to try and patch the problem and postpone the crisis. One year after the program has been closed and these loans must be repaid.

This event can sink big institutions like Bank of America, Stansberry alleges. “Bank of America reports it has $86 billion in unrecognized “mark to market” losses on that bond portfolio. The bank has tangible equity (that is, real equity) of $200 billion. If rates go above 5%, I believe Bank of America’s tangible equity would be wiped out,” he stressed.

However, not only Bank of America would be at risk, but the whole financial system would have to run to raise capital if interest rates keep rising, with bank runs ensuing.

Writers’ take: Stansberry’ perspective about investors taking refuge in commodities in the face of a countrywide bank failure is pretty interesting because it explains the rise of silver and gold from a perspective different from the classic central bank, tech-related demand, and supply-side constraints. However, it remains to be seen if the Fed would allow this to happen without organizing another bailout to protect the system again.

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