In Ted Butler's Archive


Long time readers know that the issue of speculative position limits in COMEX silver has been a signature issue of mine. Surprisingly, the CFTC just announced that it will attempt to resolve this important rule for commodities markets. Speculative position limits are the maximum number of futures contracts any one speculator can hold, long or short, in any commodity. Market manipulation is only possible if one entity (or a small group of entities) amass a large and concentrated share of any market, long or short, so as to artificially distort the price. By limiting how much any one speculator can hold, manipulation becomes impossible.

In the past both JPMorgan and the exchange (CME) succeeded in preventing position limits for COMEX silver from being enacted. JPMorgan and the CME will likely continue to oppose position limits. However, I think the Commission will institute position limits in the near future. Position limits were fought by JPMorgan over the past five years because such an enactment would have been a disaster for the bank, which held a massively concentrated short position in COMEX silver. If JPMorgan was forced to buy back its silver short positions, the price of silver would have soared. Now JPMorgan no longer holds a massive concentrated short position in COMEX silver. Could the remarkable transformation of JPMorgan from the biggest short seller to perhaps the largest silver long in history and the resolution of position limits by the CFTC be just a coincidence?

Due to the circumstances under which JPMorgan became the big silver short (by acquiring Bear Stearns at U.S. Government request), there has been a special and unspoken relationship between the regulators and the bank. In fact, I have come to conclude that former Commodity Futures Trading Commission Chairman, Gary Gensler resigned because he knew what JPMorgan was doing in silver was wrong, but could do nothing about it.

The signs of a current large buyer of physical silver are evident. JPMorgan may be the big buyer of Silver Eagles from the U.S. Mint. In the SLV a large entity has been buying whenever there is heavy trading volume. Because the identity of this entity would be revealed as soon as its share holdings exceeded 5% the big buyer transfers shares into metal which results in a withdrawal. There are only a few entities as powerful and well-connected as JPMorgan which could pull off such a massive accumulation of physical silver (including Silver Eagles and metal in the SLV). If it looks, quacks and walks like a duck, it has to be JPMorgan. Add in that the bank has probably agreed to allow the CFTC to adopt position limits and the picture would seem to be complete.

The CFTC’s position limit announcement supports my speculation that JPMorgan may no longer add to its silver short positions on silver price rallies. So the best course would be to use the extremely low price of silver for additional accumulation and to focus on the long term. Certainly, the continued flow of facts and events only enhances the future prospects for sharply higher silver prices.

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