In Ted Butler's Archive


In today’s era of high asset valuations, there still exists examples of severely undervalued assets such as silver. The unprecedented monetary easing of recent years has long been considered the main price drivers for silver and other precious metals. Not this time. Silver has never been more undervalued or cheaper relative to the stock market or real estate than it is currently. Silver has also become ultra-cheap, measured against gold.

Why is silver so darn cheap? As a vital industrial commodity – 90% of total new supply (including recycling) gets consumed industrially – there has been no falloff in demand. If anything, silver consumption has increased along with economic activity.  Nor has there been any dramatic spike in the amount of silver mined. In fact, total production has remained stagnant or fallen over the past couple of years. Silver investment demand accounts for about 10% of total new production. While it is true that investment demand has been flat, there is no evidence that existing holders have been net sellers on balance. Certainly, the growth in the two largest stockpiles of silver in the world, the big silver ETF and the COMEX inventories, have increased to near-record levels, strongly suggesting net investment demand. Recent sellouts of U.S. Silver Eagle coins, as well as shortages in other retail forms of silver also suggest no investor net dumping of silver.

So, if there are no visible signs suggesting more supply and less demand, what could possibly be responsible for the current extreme undervaluation in the price of silver? I can guarantee you that you won’t find a legitimate explanation for the price quandary. The only possible explanation for silver’s extreme undervaluation is paper trading on the COMEX. The real silver story commenced in March of 2008 when JPMorgan took over Bear Stearns. The world of silver changed dramatically when JPMorgan was thrust into the role of chief silver and gold market manipulator.

Since March of 2008 through today, on every single silver and gold price rally, JPMorgan has added just enough new COMEX short positions to cap every rally. They eventually bought back those shorts at lower prices. In the process, JPM has never taken a loss, only profits. When silver prices soared into early 2011 and JPMorgan temporarily suffered large unrealized losses on its COMEX short positions, it still didn’t cover at a loss. They rode it out, eventually buying back short positions at a profit. But the experience persuaded JPMorgan to revise its approach. While it continued to add shorts on every rally, it also embarked on a plan to accumulate as much physical silver and gold as possible. They succeeded beyond belief, amassing 750 million ounces of physical silver and 20 million ounces of physical gold.

JPMorgan now holds around half of all the world’s entire stockpile of silver in the form of 1,000 ounce bars. But of all the things JPMorgan has pulled off over the past ten years nothing comes close to what it has been able to achieve over the past few months. On the recent $3 decline in silver and $130 decline in gold, JPMorgan has managed to buy back its entire COMEX short positions in each. This is the first time JPMorgan has held no COMEX short position in silver and only the second time it has held no short position in COMEX gold (the first time was on the big gold price decline in 2013).


All told, JPMorgan bought back 90,000 contracts of COMEX gold contracts (9 million ounces) and around 45,000 COMEX silver contracts (225 million ounces), all at big profits. JPMorgan was the only trading entity even capable of such a feat. It took several months and a large amount of manipulative trading chicanery. To my mind, this is the precious metals trading equivalent of sending a man to Mars. This was done to put itself in position for a price rally like no other before. The odds-on bet has to be that JPMorgan envisions a record rally ahead – otherwise, why do what it did? This appears to be the culmination of a ten year journey for JPMorgan. We’re not looking at a garden-variety rally ahead, but something quite extraordinary.

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