In Ted Butler's Archive


Considering that JPMorgan has just come off a three-year deferred criminal prosecution agreement with the Justice Department for price manipulation (spoofing) in silver, the customers that JPM is accepting delivery for on the Dec. and Jan. contracts would most likely be users as opposed to speculators. That’s because it would be much harder to accuse JPM of wrongdoing if it were acting on behalf of bona fide silver users, rather than speculators. Friday’s large transfer of nearly 4.4 million silver ounces from registered to eligible suggests the users taking delivery may be stockpiling metal to guard against future delays in regular silver shipments.

Among the other developments related to an unusual increase in the COMEX silver warehouses over the past month, were a turnover of that same amount of silver in the holdings of SLV. Back on Dec. 2, the combined holdings in the COMEX warehouses and in SLV fell to 700.5 million ounces, the lowest in years. Now they are at 715.5 million ounces, or 15 million ounces more, with the gain due to the increase in COMEX warehouses. While the holdings in SLV are essentially unchanged since Dec. 2, there has been tremendous unseen turnover – deposits and withdrawals alike.

It’s speculation on my part, but based upon the flow of data, I get the distinct impression that metal is being moved from London (SLV) to New York (COMEX) via air shipment, I base this primarily on dates of withdrawals from SLV and deposits in the COMEX. What stands out to me is not the air shipment, as much as the quantities involved. If what I’m suggesting is correct, and silver is being moved in great quantities from London to N.Y., due to user delivery demands on the COMEX, I don’t think there could be a greater indication of physical tightness and shortage in silver. The last time I read or heard of big shipments of silver by air, was back in late 2008 or 2009, when silver dipped below $9, and reports circulated about how demand from India was so strong that cargos of silver were being delivered by air almost non-stop.

Technical clues aside, the actual supply/demand factors in silver continue to astound me and they all have to do with the first genuine physical silver shortage in history. If planeloads of silver are being flown from London to New York in order to satisfy growing demands for delivery by silver users on the COMEX, it’s hard to see how this won’t lead to much higher prices, sooner rather than later.

The pronounced physical tightness and shortage in silver is not going away under continued lower prices. That’s not how the law of supply and demand functions. Low prices cause less supply and more demand – the absolute last thing silver needs. Should the collusive COMEX commercials succeed in driving silver prices lower in the immediate short term, that will only intensify the deepening physical silver shortage. Anyone buying silver will have the full force of the law of supply and demand as a powerful companion and tailwind. Sometimes the price isn’t right, and this is one of those times in silver.

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