It seems that every few months, the charade of
"physical delivery" on Comex becomes so outrageous that we feel
compelled to write about it. Well here we are again today.
Before we get to the CME-reported numbers, let's start with the usual background...
What you need to know is that most of this
is just a massive scam. Rarely is any actual, physical metal exchanged.
Instead, the bi-monthly Comex delivery process is primarily a shuffle of
paper warehouse receipts and warrants. Additionally, the parties to
these exchanges of paper are usuallly The Banks themselves, acting in
one seemingly endless circle jerk where one month Scotia "delivers" to
HSBC and, the next month, HSBC turns around and "delivers" metals back
to Scotia. It's been this way for years and it continues to this day.
And the volume of "deliveries" rarely changes,
as well. For March, the initial amount of contracts still open and
"standing" when the contract went off the board on February 27 was
7,299. Even at the conclusion of First Notice Day on the 28th, there
were still 4,271 contracts still open. The delivery month is now
complete and a total of 3,855 "deliveries" have been made. How does this
compare to previous delivery months? It's about average. See below:
Delivery Month
|
Total "Deliveries"
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Dec 2014
|
2,975
|
Mar 2015
|
2,583
|
May 2015
|
2,840
|
July 2015
|
3,637
|
Sept 2015
|
1,555
|
Dec 2015
|
3,939
|
Mar 2016
|
1,356
|
May 2016
|
2,716
|
July 2016
|
2,474
|
Sept 2016
|
3,215
|
Dec 2016
|
3,980
|
Two-year average:
|
2,843
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So, as you can see, the total amount of
"deliveries" for March were not extraordinary by any means, though when
compared to the previous to Marches, the 3,855 for March 2017 is above
average. Regardless, let's dispel with the idea that suddenly there is
some surge of physical demand for silver on the Comex for as you can see
above, March 2017 was really no different from any other month in the
past two years.
However, I do want to make note of two items and
they both have to deal with The Major Power in Comex silver...JP
Morgan. Not only does JP Morgan control about half of the total vaulted
silver on the Comex, they only do so after nearly experiencing an
extinction-level event back in 2011 when they were caught massively
short paper silver with no physical silver with which to cover it. This
led to the final short squeeze of April 2011 and all of the events that
followed. In response and to prevent this from happening again, JPM was
rushed through the approval process for their own Comex silver vault.
See here:
https://seekingalpha.com/article/259549-will-...n-silver-shorts
In the years since, JP Morgan has amassed a
stockpile of what is alleged to be physical silver in their Comex Vault.
As of Monday, their total stockpile of registered and eligible silver
stood at just over 94,000,000 ounces versus a total Comex vaulting
structure of 191,488,871 ounces. That's just a shade over 49% and JPM
now has enough silver to "physically settle" a short position of nearly
19,000 Comex contracts should they ever find themselves squeezed again.
How did JPM acquire all of this "physical
silver"? Primarily through the Comex "delivery" process. Below are the
year-end summaries for just 2015 and 2016 (click to enlarge). Note that
the "house" or proprietary account of JPM is the primary stopper of
"deliveries" nearly every month, to the tune of a NET 10,199 contracts.
At 5,000 ounces per contract, that's just shy of 51,000,000 ounces of
their current 94,000,000 ounce warchest.
And this continued during the just-completed
March "delivery" month. As you can see below, of the stated 3,855
"deliveries", the proprietary account of JPM stopped a total of 2,689
for nearly 70%. That's another 13.5MM ounces added to the stockpile for
use in the event of another paper metal short squeeze.
Lastly, just one other item of note. Since there
is a stated position limit of just 1,500 contracts for each
front/delivery month, you might be asking yourself how JPM gets away
with stopping far more than that number. If you go back and look at the
2015 and 2016 tables above, note that they seem to adhere to these
limits each month. So why and how did they manage to stop 2,689 in
March? That's a good question so I took the time yesterday to submit a
formal complaint to the CFTC:
Given my past experience in dealing with the
CFTC, in no way do I expect any aggressive action from this neutered and
fully-controlled agency. Instead, I just thought it would be fun to see
if I heard anything back from them at all. Will I even get a response? I
can tell you that, so far, I haven't even received one of those "thank
you for writing us, we'll look into it" emails so it's not looking good.
However, if I do eventually hear from them, I'll be sure to write
follow-up to this post.
Thanks for reading and thanks for taking the
time to understand some of the forces aligned against you in the Bullion
Bank Paper Derivative Pricing Scheme.
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Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities. Since 2010, he has been the editor and publisher of the TF Metals Report found at target="_blank" TFMetalsReport.com, an online community for precious metal investors.
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The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.