In Ted Butler's Archive


After studying the silver market closely for more than three decades, I find it unbelievable that its single most important price factor is still unknown. The vast majority of the investment world has little interest in silver and that’s unlikely to change. But under-appreciation has its merits. After all, silver has a history of climbing in price higher and faster than any other asset class and a multitude of factors now point to another massive price move ahead.

An incredibly small amount of physical silver is available for investment. Most of the silver produced over the centuries has been used up in industrial applications. The fact that more investment buying power exists today than ever in history brings to mind the words of the famous silver speculator, Bunker Hunt: “Silver is an accident waiting to happen.” Granted, silver also has a history of plunging more than other commodities, but since prices have already declined by 70% from the peak of five years ago, the next big move will be up.

Even among those who follow silver closely, remarkably little is mentioned about the one factor that just about guarantees much higher silver prices. The U.S.’s biggest and most important bank, JPMorgan Chase, has accumulated the largest privately owned stockpile of physical silver in world history over the past five years – 500 million ounces. The only reason JPMorgan has acquired half a billion ounces of actual silver is to make as much of a profit as possible. Simple reasoning dictates that those holding silver, along with JPMorgan, will profit immensely when the bank does what it can to ensure the highest possible price for silver.

Most people think of banks as being involved in mortgages and checking accounts and are surprised that JPMorgan deals in commodities, like silver. In addition to being the largest dealer in OTC precious metals derivatives contracts, JPMorgan was suddenly thrust into the role of being the largest dealer in gold and silver on the COMEX, as a result of being asked (by the U.S. Treasury and Federal Reserve) to take over the failing investment banking firm Bear Stearns in March 2008. Few knew at the time that Bear Stearns was the largest short seller in COMEX gold and silver and its takeover by JPMorgan resulted in JPM becoming the biggest short seller.

While it would appear that JPMorgan came to acquire Bear Stearns by government request, data from a different government agency, the CFTC, indicate that JPMorgan came to dominate and manipulate silver pricing by maintaining and adjusting the largest concentrated short position in COMEX silver futures. (For the record, I complained to the regulators that what JPMorgan was doing was manipulative to silver prices and succeeded in generating a CFTC investigation into the matter. Still, the manipulation continued.)

As a result of being able to sell short virtually unlimited quantities of COMEX silver futures contracts as prices rose and then buying back those contracts as it caused prices to fall, JPMorgan made many hundreds of millions of dollars in the years immediately following its takeover of Bear Stearns. But because the continued manipulation resulted in silver being priced too low for too long, by late 2010, signs of a physical shortage began to appear. In accordance with the immutable law of supply and demand, silver prices surged to nearly $50 by April 2011, from as low as $9 in late 2008. This caught JPMorgan flat-footed and necessitated it team up with the CME Group (owner of the COMEX) to rig the steepest selloff in modern commodity history, which pulled JPM’s bacon from the fire.

Having looked into the abyss with its big short position as silver soared into the April 2011 price highs, it dawned on JPMorgan how little actual silver existed in the world. At that time the bank decided to be on the long side, not the short side. But deciding to buy as much physical silver as it could and actually buying the metal are two different things, even if you happen to be JPMorgan, with unlimited buying power. One doesn’t place a market order to buy half a billion ounces of silver and call it a day. It takes time, patience and cunning, particularly considered how little available investable silver exists in the world. No matter how rich or powerful JPMorgan may be, buying 500 million physical ounces of silver, given the realities of actual available supply, would take years – as has turned out to be the case.

JPMorgan knew that the amount of real world silver available for sale is limited. There isn’t much to begin with (say 1.3 billion ounces in the form of 1,000 ounce bars) in the world and of that amount only a small percentage is ever available for sale. Most of the silver newly mined and produced is spoken for and consumed by a variety of industrial and other fabrication demands. Investment demand must compete with those other demands, a circumstance highly unique to silver. For the past few years, less than 100 million silver ounces have been available annually for investment. It’s taken five years for JPMorgan to acquire 500 million ounces for good reason – that was all it could buy without driving prices higher.

JPMorgan has used a variety of methods in accumulating its massive silver hoard. As the leading dealer and largest warehouse on the COMEX, as well as the official custodian and leading authorized participant of the world’s largest silver exchange traded fund, JPMorgan was in a privileged and special position to have acquired, effectively, all the newly available silver in the world for the past five years. Despite a desire to shield its silver accumulation from public scrutiny, some important visible clues have emerged pointing to JPMorgan’s actions since April 2011.

Among them are the opening of the JPMorgan COMEX silver warehouse in April 2011, as well as the commencement of an unprecedented physical turnover of silver in the COMEX inventories, which continues to this day. Due to the large weekly “churn,” JPMorgan was able to skim off hundreds of millions of silver ounces, which were brought into its COMEX warehouse and other non-public warehouses. From zero ounces five years ago, the JPMorgan COMEX silver warehouse has grown to the largest COMEX warehouse, holding nearly half (70 million ounces) of the total COMEX inventories. In 2012, JPMorgan cleared out and transferred 100 million ounces it held on behalf of holders in SLV in its own London warehouse to make room for silver to be held in its own name. JPMorgan started to take delivery on futures contracts (despite being a big paper short) and over the past year or so has taken 45 million ounces in total deliveries, taking close to the full amount allowed monthly. It’s not far from the truth to say that JPMorgan has been nearly the exclusive acceptor of COMEX silver deliveries.

Perhaps the cleverest method JPMorgan has employed to acquire physical silver has been as the leading purchaser of newly produced Silver Eagles from the U.S. Mint and Silver Maple Leafs from the Royal Canadian Mint over the past five years. All told, JPMorgan has acquired over 100 million Silver Eagles and 50 million Silver Maple Leafs during this time, and maybe a lot more. I believe JPMorgan has melted down these coins into 1,000 ounce bars to best prepare for eventual sale.

The most remarkable aspect to JPMorgan’s massive physical silver accumulation is that it was able to do so on steadily declining prices, because, as you know, silver prices have declined from near the $50 mark for the past five years. How did JPMorgan pull off buying 500 million ounces of silver on falling prices? Because the entire time JPM was buying silver, it was still managing the price lower on the COMEX by increasing or decreasing its manipulative paper short position. This is truly the perfect crime – buying a corner on the physical silver market cheaply, by maintaining a short corner on the paper COMEX market. Who would be more capable of pulling this off than JPMorgan, the best-connected and most powerful U.S. bank?

Having accumulated the largest hoard of physical silver in history and being in position to reap the biggest profit in history when silver prices soar – what can JPMorgan do to bring that about? All JPMorgan has to do to guarantee that silver prices will soar to the heavens and beyond is not sell additional contracts of COMEX silver short on the next big rally. It has been JPMorgan who has put a cap on all the silver rallies over the past five years in order to contain prices so that it could add to its massive physical holdings at cheap prices. The corollary to that equation is that when JPMorgan decides it has enough silver, as I believe it is close to now, the price will soar if it merely refrains from adding new shorts on the COMEX.

The best part about this amazing story, in addition to being almost universally unknown and destined to be discovered, is that it offers the investment opportunity of a lifetime. All one has to do is what JPMorgan has done – buy as much silver as one is capable of buying – and then wait for JPMorgan to help itself. No complicated formulas, no risky leveraged schemes – just buy real silver for full cash payment and sit and wait. After all, that’s exactly what JPMorgan has done and after five years, the wait should not be long.

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