Over the last weeks, a great debate has erupted regarding silver.
More to the point, Ted Butler claims JP Morgan has accumulated at least 350
million physical ounces. Some pooh pooh this and say it is not possible
while others who may believe it are scared witless because they are afraid
Morgan will dump the metal and destroy the silver price.
Taking first things first and then later expanding, I believe it is
possible for Morgan to have accumulated this silver. If you look at the
bleed from both COMEX and SLV inventories and add in the purported movements
on the LBMA, I do believe it is possible that JPM has amassed a silver war
chest. From a “dollar” standpoint, this is only about $5 billion which
wouldn’t even need to come from their equity as they have a direct pipeline
to the bowels of the Fed and Treasury for credit.
To answer the question of “fear” propounding this silver will be used to
destroy the market, I would first remind you that “devious” and “stupid” are
two separate descriptions. No matter what anyone believes, JP Morgan is
not stupid, devious may be another matter altogether with each fine they have
paid as proof. JP Morgan has had a huge short paper position in silver
for many years dating back to at least 2007 when they inherited Bear Stearns
positions. The position has been so large in fact, they could never
possibly “push a button” to cover it because the metal simply never existed
to cover it in a short period of time. Any attempt to cover would have
created a panic of demand and a minimum price of $100 per ounce for starters!
This leads us to one of several theories and the most obvious, JP Morgan
has been amassing physical silver and is now actually a hedge against their
short position as opposed to the other way around. It makes zero sense
to me that Morgan would dump a physical position because the accumulation was
so difficult to acquire in the first place. As I said above, JP Morgan
is not stupid and they understand the logic of where the macroeconomics are
headed. They know the game is either inflate or die and can surely make
the judgment as to whether or not they want to be net long, or short
silver. And trust me, they also know the difference between paper
contracted silver and the real thing in their vaults.
It also occurred to me, what if the short position is “used” to revalue
the long position? We have seen so many times where naked contracts
were “sold sloppy and sold BIG”, what if JPM decided to actually cover their
short by buying “sloppy”? They effectively could use the short position
as a springboard if you will? What would stop them from covering the
short to become flat and just keep on buying sloppy in the futures pits and
running every short on the planet? They must surely know the upside
pressure is there not only technically but fundamentally because of the
supply being knocked off stream by below production prices? This is an
easy trade for them if truly have built a physical long, thus making
their short to unwind the “sloppier the better”! This makes more
sense to me than dumping the physical long which everyone is so afraid of.
Another theory is that JP Morgan has gotten very long physical silver at
low prices by compressing said price in the futures markets. Some
believe Morgan understands where the game is headed and also understands the
“uses” for silver are expanding exponentially, and in particular the solar
energy industry. This is possible in my opinion as I don’t believe
there is any hoard of 350 million ounces or more anywhere else. Maybe
they are looking to the future and want to sit on the real metal to supply
into a future market at grossly higher prices with real demand
unable to be satisfied.
There is one more theory, one that I cannot prove but makes a lot of
sense. I believe the Chinese lent 300 million ounces of silver to the
U.S. back in 2003 and this was a 10 year lease. I believe the lease ran
out and was defaulted on in 2013, this would partially or mostly explain why
silver was attacked in the paper markets so brutally. The “tree had to
be shaken” in an effort to shake some real silver from holders hands.
Also if you remember, it was around this time that Warren Buffett let loose
of his 129 million ounce position he announced originally a few years
earlier, the divestiture “coincidentally” coincided with the formation of the
ETF, SLV… that was funded with a very similar number of ounces!
It is my belief that after the U.S. defaulted on its lease to China, China
wanted some sort of assurance they would ultimately be paid. It was
this broken transaction and the following agreement not to “let the price of
silver (or gold) to get away” that has allowed China to amass huge sums of
gold “in lieu of” silver. I believe this broken transaction is the
reason suppression has been so blatant and violent since April 2013, time
will tell.
I say “time will tell” because something very different has just begun to
happen. Sovereign bonds all over the world have begun to gyrate wildly
with yields moving to the upside. The short squeeze/giant margin call
in the dollar seems to be ending and the dollar has now reversed. Gold
and silver are also acting unlike anything over the last two years just
today. They opened on the firm side, jumped higher, and then rather
than being capped it is like they are bulldozers in low gear steadily rising
tick by tick. We will need a few more days to see if the previous
patterns are firmly broken but it looks like it so far.
The odds China announces how much gold they have accumulated sometime
later this year are very high in my opinion. The case for 10,000 tons
is very easily proven, just as is the case that much of that gold MUST have
come from N.Y., London and the FRBNY (or Fort Knox). The paper short
positions in gold and silver will be destroyed in virtually overnight fashion
after any announcement by China even close to 10,000 tons.
Getting back to JP Morgan’s silver position, I cannot see them trying to
“flood” the market with physical silver because a move like
this might have the staying power of 24 hours. For them to sell $5
billion worth of silver is laughable in dollar terms and would be
“Hooverized” by physical buyers (even China herself) long before it hit any
market or exchange. If JP Morgan truly does have 350 million ounces of
real physical silver it is in my opinion because they are bullish on “real
physical silver”!
