After studying the silver market closely for more than three decades, I
find it nearly unbelievable that its single most important price factor is
widely unknown. Admittedly, the vast majority of the investment world has
little interest in silver and that’s unlikely to change any time soon. But
underappreciation has its merits in the investment world. After all,
silver does have a history of climbing in price higher and faster than just
about any other asset and a multitude of factors now point to another massive
price move higher ahead.
The factors favoring a big move higher revolve around the incredibly small
amount of physical silver available for investment as a result of most of the
silver produced over the centuries having been used up in industrial applications.
That, in combination with the fact that more investment buying power exists
today than ever in the history brings to mind the words of the famous silver
speculator, Bunker Hunt, “silver is an accident waiting to happen.”
Granted, silver also has a history of plunging more than other commodities,
but since prices have already declined by 70% from the peak of five years
ago, the next big move will, undoubtedly, be up.
Still, even among those who follow silver closely, remarkably little is
mentioned about the one factor that just about guarantees much higher silver
prices ahead. That factor is that the US’s biggest and most important bank,
JPMorgan Chase, has accumulated the largest privately owned stockpile of
physical silver in world history over the past five years – 500 million
ounces. Only the US Government owned more silver than JPMorgan, but that was
nearly a century ago and came when silver was used in common coinage. The US
Government once owned several billion ounces of silver, but today holds no
silver, having completely eliminated its holdings.
Further, the US Government never held silver with the intent of seeking a
profit. In contrast, the only reason JPMorgan has acquired half a billion
ounces of actual silver is for the express purpose of making as much of a
profit as possible. By simple logic, JPMorgan will make the largest possible
profit on its silver holdings only if the price of silver climbs to the
highest levels possible. Simple reasoning also dictates that those holding
silver, along with JPMorgan, will profit immensely when the bank does what it
can to insure the highest possible price for silver. I’ll get into what
JPMorgan must do to insure the highest possible price for silver in a moment,
but first let me establish that the bank has acquired 500 million ounces of
metal.
Most people think of banks as being involved in mortgages and checking
accounts and are surprised at first at the thought that JPMorgan even deals
in commodities, like silver. But the truth is that for many years,
JPMorgan has been the largest US bank dealing in Over the Counter (OTC)
commodity derivatives contracts in gold and silver. Even though JPMorgan
always dealt big in commodities, its path to accumulating half a billion
ounces of actual silver took a very specific and traceable route.
In addition to being the largest dealer in OTC precious metals derivatives
contracts, JPMorgan was suddenly thrust into the role of being the largest
dealer in gold and silver on the COMEX, as a result of being asked (by the US
Treasury and Federal Reserve) to take over the failing investment banking
firm Bear Stearns in March 2008. Few knew at the time that Bear Stearns was
the largest short seller in COMEX gold and silver and its takeover by
JPMorgan resulted in JPM being thrust into the role of it being the biggest
short seller.
While it would appear that JPMorgan came to acquire Bear Stearns by
government request, data from a different government agency, the CFTC,
clearly indicate that JPMorgan came to dominate and manipulate silver pricing
by means of maintaining and adjusting the largest concentrated short position
in COMEX silver futures. (For the record, I complained to the regulators that
what JPMorgan was doing was manipulative to silver prices and succeeded in
generating a CFTC investigation into the matter. Still, the manipulation
continued).
As a result of being able to sell short virtually unlimited quantities of
COMEX silver futures contracts as prices rose and then buying back those
contracts as it then caused prices to fall, JPMorgan made many hundreds of
millions of dollars in the years immediately following its takeover of Bear
Stearns in early 2008. But because the continued manipulation resulted in
silver being priced too low for too long, by late 2010, signs of a physical
shortage began to appear, in accordance with the immutable law of supply and
demand, and silver prices surged to nearly $50 by April 2011, from as low as
under $9 in late 2008. This caught JPMorgan flat-footed in holding COMEX short
positions and necessitated it teaming up with the CME Group (owner of the
COMEX) to rig the steepest selloff in modern commodity history, which pulled
JPM’s short bacon from the fire.
Having looked into the abyss with its big short position as silver soared
into the April 2011 price highs, it suddenly dawned on JPMorgan how little
actual silver existed in the world and at that time it decided that the right
side to be on in silver was the long side, not the short side. I fully admit
to considering JPMorgan, at least as far as its dealings in silver are
concerned, to being a criminal enterprise; but I also consider them to be the
smartest crooks around. My definition of smart would include learning from
one’s mistakes and being on the wrong side in the run up in silver prices in
2011 is what convinced JPMorgan to buy as much silver as it could.
But deciding to buy as much silver as it could and actually buying the
metal are two very different things, even if you happen to be JPMorgan, with
virtually unlimited buying power and market capability unmatched. One
doesn’t just blink one’s eyes and place a market order to buy half a billion
ounces of silver and call it a day – takes time, patience and cunning.
Particularly considered how little available investable silver exists in the
world. No matter how rich or powerful JPMorgan may be, buying 500 million
physical ounces of silver, given the realities of actual available supply,
would take years – as has turned out to be the case.
JPMorgan knew and knows that the amount of real world silver available for
sale is limited by a few indisputable facts, namely, there isn’t much to
begin with (say 1.3 billion oz in the form of 1000 oz bars) in the whole
world and of that amount only a small percentage is ever available for sale
at current prices – no more than a few percent. Compounding the small
amount of truly available supply from existing holders is the bedrock
certainty that most of the silver newly mined and produced is spoken for and
consumed by a variety of industrial and other fabrication demands –
investment demand must compete with those other demands, a circumstance
highly unique to silver. For the past few years, less than 100 million
silver ounces were available annually for investment after other silver demands
were met.
There has been no large amount of silver sold by those holding it over the
past five years, but also there has been no big buying by these or other
investors – call it a wash. In essence, because those in the investment
world were neither buying nor selling physical silver over the past five
years, JPMorgan could only buy the “leftover” silver – the amount of newly
produced silver not consumed in other fabrication demands. It’s taken five
years for JPMorgan to acquire 500 million oz for good reason – that was all
it could buy without driving prices higher.
JPMorgan has used a variety of methods in accumulating its massive silver
hoard, as I have previously detailed. As the leading dealer and largest
warehouse on the COMEX, as well as the official custodian and leading
authorized participant of the world’s largest silver ETF, SLV, JPMorgan was
in a privileged and special position to have acquired, effectively, all the
newly available silver in the world for the past five years. Despite a compelling
desire to shield its silver accumulation from public scrutiny, some important
visible clues have emerged pointing to JPMorgan’s actions since April 2011.
Among them are the opening of the JPMorgan COMEX silver warehouse in April
2011, as well as the commencement of an unprecedented physical turnover of
only silver in the COMEX inventories, which continues to this day. Due to the
large weekly “churn,” JPMorgan was able to skim off hundreds of millions of
silver ounces, which were brought into its COMEX warehouse and other
non-public warehouses. From zero ounces five years ago, the JPMorgan COMEX
silver warehouse has grown to the largest COMEX warehouse, holding nearly
half (70 million oz) of the total COMEX inventories. In 2012, JPMorgan
cleared out and transferred 100 million oz it held on behalf of holders in
SLV out of its own London warehouse to make room for silver to be held in its
own name. JPMorgan started to take delivery on futures contracts (despite
being a big paper short) and over the past year or so has taken 45 million oz
in total deliveries, taking close to or the full amount allowed monthly. It’s
not far from the truth to say that JPMorgan has been nearly the exclusive
acceptor of COMEX silver deliveries.
Perhaps the cleverest method JPMorgan has employed to acquire physical
silver has been as the leading purchaser of newly produced Silver Eagles from
the US Mint and Silver Maple Leafs from the Royal Canadian Mint over the past
five years. All told, JPMorgan has acquired over 100 million Silver Eagles
and 50 million Silver Maple Leafs during this time, and maybe a lot more. As
I have also previously explained, I believe JPMorgan has melted down these
coins into 1000 oz bars to best prepare for sale eventually.
The most remarkable aspect to JPMorgan’s massive physical silver
accumulation is that it was able to do so on steadily declining prices,
because, as you know, silver prices have declined from near the $50-mark over
the past five years. How the heck did JPMorgan pull off buying 500 million
ounces of silver on falling, not rising prices? Because the entire time JPM
was buying silver, it was still managing the price lower on the COMEX by
maintaining and managing its manipulative paper short position. This is truly
the perfect crime – buying a corner on the physical silver market cheaply, by
maintaining a short corner on the paper COMEX market. And I can’t imagine who
would be more capable of pulling this off over than JPMorgan, the
best-connected and most powerful US bank.
Having accumulated the largest hoard of physical silver in history and
being in position to reap the biggest profit in history should silver prices
soar – what can JPMorgan do to bring that about? More amazing than anything
else, the one thing JPMorgan can do to cash in like no one has ever done in
silver is, well, nothing. That’s not a misprint. All JPMorgan has to do to
guarantee that silver prices will soar to the heavens and beyond is nothing;
specifically, not sell additional contracts of COMEX silver short on the next
big rally. You see, it has been JPMorgan who has put a cap on all silver
rallies over the past five years in order to contain prices so that it could
add to its massive physical holdings at cheap prices. The corollary to that
equation is that when JPMorgan decides it has enough silver, as I believe it
is close to now, the price will soar if it does nothing and refrains from
adding new shorts on the COMEX.
The best part about this amazing story, in addition to being almost
universally unknown and destined to be discovered, is that it offers the
investment opportunity of a lifetime. All one has to do is what JPMorgan has
done – buy as much silver as one is capable of buying - and then wait for
JPMorgan to help itself. No complicated trading formulas, no risky leveraged
schemes – just buy real silver for full cash payment and sit and wait. After
all, that’s exactly what JPMorgan has done and after five years, it wouldn’t
appear the wait will be very much longer.
Ted Butler
June 2, 2016
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