Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver”

JP Morgan Silver Stocks, Apr 2011 - Jan 2018

Source: Sharelynx - Click to enlarge

There has been some record buying in the last fortnight. The report shows some impressive moves given just under a month ago the silver market was net short. Last week speculative gross long positions in Comex silver futures rose by 11,920 contracts to 66,224. Whilst short positions fell by 10,379 contracts to 28,122. Silver’s net long positions now stand at 38,102 contracts.

For the current week’s reporting, the four largest traders are short 130 days of world silver production-and the ‘5 through 8’ large traders are short an additional 70 or so days of world silver production-for a total of 200 days. This is around seven months of global silver production.

Much of this is attributed to JP Morgan, who according to respected silver analyst Ted Butler, is responsible for the ‘third great investment accumulation of physical silver’.

The silver market has been closely monitoring JP Morgan’s activities for some time. Since April 2011 the powerful bank has been accumulating silver at a quite a rate. It has taken its position from zero to nearly 120m ounces this month, less than six years later.

Butler explains:

‘Just about every ounce moved into the JPMorgan COMEX warehouse over the past 7 years has come from futures deliveries stopped (taken) by JPM in its own name. JPMorgan took delivery of 14 million ounces in December and so far, 13 million ounces have remained in the warehouses from which the metal was delivered. So this means that JPMorgan now holds more than 133 million ounces of silver in COMEX warehouses, or more than was held by the Hunt Bros or by Berkshire Hathaway at their peaks. There was a lot more silver in the world in 1980 and 1998 than there is today, meaning that JPMorgan’s accumulation is much more of an accomplishment than previous silver acquisitions.’

Concentration of Traders

JP Morgan are out Hunting the silver market - Click to enlarge

This would not come as a surprise to JP Morgan shareholders who have previously received such warnings from CEO Jamie Dimon who has stated ‘there will be another crisis’.

Dimon has even admitted that the trigger for the next crisis may not be the same trigger as the last one – but there will be another crisis:

“Triggering events could be geopolitical (the 1973 Middle East crisis), a recession where the Fed rapidly increases interest rates (the 1980-1982 recession), a commodities price collapse (oil in the late 1980s), the commercial real estate crisis (in the early 1990s), the Asian crisis (in 1997),so-called “bubbles” (the 2000 Internet bubble and the 2008 mortgage/housing bubble), etc. While the past crises had different roots (you could spend a lot of time arguing the degree to which geopolitical, economic or purely financial factors caused each crisis), they generally had a strong effect across the financial markets.”

JP Morgan’s silver accumulation in the face of upcoming turmoil may lead some to ask why not go for gold? It’s likely that the depressed price is the deciding factor here.

The bank is often compared to the Hunt brothers when it comes to cornering of the silver market, but in truth the bank has been much savvier and is set to make far more. After all, the Hunt’s accumulated primarily paper silver, JP Morgan are going after the hard stuff. Had the Hunt brothers, bought more physical silver bullion and less paper silver in the form of futures, they would likely have made even more money than they could imagine.

Silver/USD, Jul 2008 - Oct 2017

Silver USD, Jan 2007 – Jan 2017, Goldcore.com - Click to enlarge

More silver bullion than we know?

Butler believes that ‘JPMorgan holds at least 675 million ounces of actual silver. Simply put, JPMorgan has acquired six times as much metal as bought by the Hunts or Berkshire Hathaway. If this really is the case then it would account for ‘nearly 45% of the 1.5 billion ounces of silver bullion in the form of industry standard 1,000 ounces bars in the world’.

The ability to accumulate so much physical silver whilst at the same time sell short huge quantities of paper derivatives or futures contracts could be the poster child for market manipulation. After all, the selling results in lower prices which then paves they way for more physical buying by the bank.

Butler again:

It couldn’t possibly be legitimate and that makes JPMorgan a market crook and manipulator. It also makes the federal regulator, the CFTC, and the self-regulating CME Group, incompetent, corrupt, or both. This takes a special kind of market manipulator, one most likely operating under some type of agreement with the regulators.

To what end are JP Morgan pursuing this path of silver hoarding?

That intent is to sell at as large a profit as possible. No one buys any investment asset with the intention of losing money, least of all JPMorgan. They didn’t spend the last seven years accumulating physical silver to sell that silver at anything but the highest price possible. I can’t tell you when JPM will let the price of silver fly, but I am certain that that day is coming.

Silver prices looks particularly undervalued right now. Last year it gained just 1.6%, compared to 11.5% for gold and 48% for palladium. Yet we (and big banks such as JP Morgan) remain bullish. We have previously written about our forecast that silver prices will surpass its nominal high of $50 per ounce and its inflation adjusted high of $150 per ounce in the coming years.

The fundamental reasons for our very bullish outlook on silver is very reasonable. There are increasing global macroeconomic, systemic, geopolitical and monetary risks.  Silver’s historic role as money and a store of value has already been identified time and time again in the past and history is repeating itself.  It is also worth considering the declining and very small supply of silver, not to mention increasing investment demand from one of the world’s most powerful banks and other contrarian investors.

We should see JP Morgan’s accumulation as not just a sign to buy physical silver but also that the next financial crisis is coming and its time to diversify into physical gold and silver bullion coins and bars.

Bank of China Growth Weaker Dollar, 2013 - 2017

Source: Bloomberg - Click to enlarge