In Ted Butler's Archive


It was totally unexpected, but the big commercial bank Goldman Sachs took delivery on 2400 contracts in March COMEX futures. This represents 12 million ounces of physical silver. You can count on one hand the number of times larger monthly deliveries have been taken by any one firm for its own account. Only JPMorgan has stopped more silver in any single month, including the largest amount ever this past December, when JPM took delivery on 2800 silver contracts (14 million ounces). Goldman Sachs has never been active in COMEX gold and silver deliveries, or for that matter, in precious metals futures trading. They may be involved in every aspect of world financial markets, but not precious metals.

As previously reported, Scotiabank had tried to offload its precious metals unit, ScotiaMocatta, for more than a year before throwing in the towel and ending up keeping the unit, which it said it will shrink – a failed sale by any account. Goldman Sachs and Citibank were said to be the last two prospective buyers and, in hindsight, must have seen something that they didn’t like. Perhaps Goldman uncovered that the purported reason for the unit’s sale, an alleged scandal involving smuggled gold from South America wasn’t the real reason for the sale.  My speculation is that in reviewing the prospects of buying the Mocatta unit, Goldman Sachs uncovered the degree of silver short selling Scotia was involved in and decided it wanted no part of it. But Goldman’s due diligence may have led it to discover that silver was manipulated in price and represented the investment bargain of all time, just as JPMorgan had discovered seven years earlier.

Armed with this new knowledge, Goldman embarked on the most logical next step, namely, buying as much physical silver as it could without disturbing the price. I may be stretching it, but I further think that Goldman’s large stopping of silver in the December contract and subsequent redelivery could have been a “trial run” in which it tested the waters to see how the delivery function worked. Having worked to its satisfaction, Goldman came back for more in March and if any of this speculation is on the mark, will be on the hunt for more silver going forward. If accurate, what effect will this have on the silver market? The answer would be extremely bullish. The single biggest advantage that JPMorgan has had in its epic accumulation of 700 million ounces of physical silver over the past seven years is that it had the game to itself with no competition. JPMorgan has acquired physical silver, through various means, on the order of 8 million ounces per month over the past 84 months. Goldman Sachs just picked up 12 million ounces in the COMEX March delivery period (plus 2.5 million in December), which according to my speculation messed up JPMorgan’s exclusive silver buying status and caused them to back down and liquidate futures contracts on which it planned to take delivery in order to make room for Goldman Sachs.

Today, JPMorgan delivered 200 silver contracts (one million ounces) from its own house account, an event while not totally unprecedented has been quite rare. This confirms my backing-down premise, as well as my sense of tightness in physical silver. The available supply is way too small for more than one big buyer. JPM’s continued accommodation is not likely to be long lasting. If Goldman continues on the silver hunt, the minute JPM stops being accommodative prices head higher in a hurry.

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