In Ted Butler's Archive


We’ve experienced the mother of all selloffs in silver, in both positioning and price, and this will most likely result in the price explosion I began focusing on two months ago. The futures contract positioning changes explain why silver prices have been smashed, but they also set up the price explosion to come. It has to be that way.

The changes in this week’s Commitments of Traders (COT) Report, for positions held as of the close of business on Monday, July 3, were spectacularly bullish, making this the fourth reporting week in a row of significant improvement in both silver and gold.

Through last Monday, July 3rd, JPMorgan had bought back 13,000 short contracts over the last four reporting weeks, leaving it short 15,000 contracts.  The 13,000 short contracts that JPMorgan bought back are the equivalent of 65 million ounces. To be sure, these are paper ounces and not physical ounces, but in this case they are the same as far as JPMorgan is concerned. There is no way that JPMorgan, or anyone else, could possibly buy 65 million actual ounces of silver over the past few weeks. The huge volume on the price plunge of Friday July 7th suggests they bought back another 20 to 25 million ounces. This would leave them with the lowest short position they’ve ever had. We’ll assume until next Friday’s report that they have bought an additional 25 million paper ounces.

JPMorgan holds such an unusual silver position overall, unlike any other the world has ever seen, that it makes paper and physical the same. Because JPMorgan holds 600 million ounces of physical silver and also holds a very large COMEX paper short position, for it to buy back 65 million ounces of its paper short position is exactly the same as if it bought 65 million ounces of physical silver.

What this means is that JPMorgan has benefitted more than any other single entity in silver’s recent price plunge. The mark-to-market loss it would have taken on its massive physical silver position only counts if it were to dispose of its physical metal at current prices and that’s not happening. What counts is the 65 million ounces of paper short positions that no longer exist. Not only is JPMorgan off the hook on 65 million and probably 25 million ounces more it held short, the crooked bank got off the hook with a profit. By buying back its short positions at lower prices than it originally sold at. JPM preserved their impossibly perfect and crooked trading record of never taking a loss.

Buying back as many of its COMEX short contracts as possible is the single best thing JPM could do for itself. JPM is now more net long in silver than ever before and, therefore, stands to gain more on a silver price rally than ever before. More importantly, buying back COMEX paper short positions was the only practical way for JPM to so drastically increase its net silver long position. The silver market structure is more bullish than it has ever been. It may feel like a time to throw the towel in on silver, but in mechanical market structure terms, it’s hard to imagine how the structure could improve from here.

Based upon everything that I look at and hold to be true, silver is now priced so low that on a long term basis, it should be bought even if one needs to sell gold (or anything else) in order to fund the purchase. JPMorgan is buying back its paper silver short positions with an aggression rarely witnessed. After taking more than six years to accumulate the largest privately-owned physical stockpile of silver in history JPM knows silver will soar. The message here is to be like JPMorgan and buy as much silver as you can get your hands on.

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