In Ted Butler's Archive


I am now convinced that JPMorgan has acquired the largest holding of physical silver in the modern world over the past three years (since May 2011), surpassing the levels held by the Hunt Brothers and Warren Buffett. For years I harped on their short position in silver futures. I realize this comes out of the blue. If I am correct, it holds profound implications for the price of silver.
JPMorgan took over Bear Stearns nearly six years ago. Since Bear Stearns was the big short in COMEX gold and silver, JPM stepped into that role. The bank drastically reduced this short position on a 60% engineered drop in silver prices to less than $9 in late 2008, from close to the $21 level at the time of its acquisition in March 2008.

JPMorgan found itself on the wrong side of the market when prices exploded to close to $50 in April 2011. Only an unprecedented 30% deliberate price smash on the COMEX during the first week of May 2011 (and later in September of that year) saved JPMorgan from the same fate that had hit Bear Stearns in 2008. This near death experience was due to a developing physical silver shortage that was overwhelming any amount of paper short sales made to depress the price.

The key feature at the time was a surge in physical silver buying, particularly in the silver ETFs, such as SLV. One key case in point was the introduction of Sprott’s silver ETF, PSLV, in late 2010. There was a delay in Sprott receiving the metal it had ordered and when it finally did arrive it was noted that the bars received were manufactured after the order to buy had been placed. This indicated there were no old or previously-produced silver bars available; or, in other words, a developing physical shortage.

Left unchecked, a physical silver shortage would have decimated the shorts, particularly the biggest short, JPMorgan, and caused the price to explode upwards from $50. The only solution for JPMorgan was to suddenly and drastically smash the price to kill off physical silver demand (from the ETFs). I only wish it had been clear to me at the time. JPMorgan’s near death experience in April 2011 was not lost on JPMorgan. The bank came to see that silver was in short supply and destined to climb sharply in price over time.

Subsequently, the bank made the decision to buy as much silver as possible. JPMorgan has amassed a physical holding of silver of 100 to 200 million ounces. How do they do it?

There was a very big liquidation in SLV of 60 million ounces in the two months following the May 2011 silver price smash. I believe much of this was acquired by JPMorgan. After the May 2011 price smash, JPMorgan opened its own COMEX-approved warehouse. From zero ounces held in May 2011, silver on deposit at the JPM warehouse sits at 45 million ounces today.

ne can’t tell if JPMorgan owns all the silver there, but neither can it be ruled out. Certainly, it would be logical for JPMorgan to store its own silver (and gold). Furthermore, JPMorgan recently took delivery of 15 million ounces in COMEX silver which fits like a glove with my premise.

I also believe that JPMorgan has amassed tens of millions of ounces of silver in London. They buy shares of SLV and convert the shares for metal to avoid reporting requirements. The great thing for JPMorgan is that it doesn’t have to disclose any of its metal holdings thanks to lax reporting requirements for banks (especially banks that sit close to the U.S. Government).

I don’t think there can be much question that JPMorgan has the financial means to have purchased 200 million ounces of silver (or more) at an average price of around $25. That would come to $5 billion, which happens to equate with JPMorgan’s average quarterly net profit. Who couldn’t afford to buy the largest holding of silver in the world if it only cost the equivalent of three months net profit?

What about JPMorgan’s short position in COMEX silver futures, which looked to be in the 16,000 contract range (80 million ounces) in the latest COT report? If the bank owns 200 million ounces and it holds no other paper offsets, it would still be net long 120 million ounces. It is important to recognize that JPMorgan has trimmed its COMEX short position by 20,000 contracts (100 million ounces) from this time last year. It is also important to remember that the big buyback was accomplished in a time of sharply falling prices. This is something that could only occur if price manipulation was in effect. If JPMorgan hadn’t been capable of rigging silver prices lower in 2013, it would never have been able to buy back 100 million ounces of short paper contracts and buy tens of millions of physical silver as well.

The fact that JPMorgan is still short 16,000 COMEX silver contracts highlights one difference between paper and physical. Each market has its own internal characteristics and participants. In physical, JPMorgan buys what new silver becomes available, either from mining or recycling or as existing holders sell. On the COMEX, it is a paper game between the commercials and the speculators (tech funds). There are different dynamics and different players in each market. However, that interplay on the COMEX is what sets prices.

Most important is what this means for the price of silver. If JPMorgan holds the amount of physical silver I believe the bank to hold, it’s incredibly bullish long term, as you can be sure the bank will allow the price to rise dramatically before selling. You couldn’t ask for a more bullish scenario that virtually ensures an enormous price rise.

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