Eric Fry

There’s a lot of rumor, buzz, innuendo, chitchat and scuttlebutt about the precious metals markets these days. Most of the chitchat is about J.P. Morgan and silver. Rumor has it that J.P. Morgan has amassed a whopping short position in silver.

The scuttlebutt, according to SFGate.com, is that “J.P. Morgan holds a giant short position in silver. Furthermore, some observers are accusing the bank of acting as an agent for the Federal Reserve in the market…I.e., a lower silver price helps maintain the relative appeal of the US dollar…

“By selling massive amounts of paper silver in the futures market,” SFGate continues, “J.P. Morgan has been able to suppress the price of the precious metal. It is believed that these short positions are naked (i.e. they are not backed by any physical silver).”

If the silver price were falling, Morgan’s (alleged) short position would be lauded as a stroke of genius. But since the silver price is soaring, Morgan’s (alleged) short position looks much less laudable.

“In recent days,” SFGate notes, “rumors have been swirling on the Internet that J.P. Morgan’s massive short position is about to blow up in its face in the form of an almighty short squeeze and potential COMEX default, as large traders demand physical delivery of silver that COMEX does not have in its vaults.”

Based on some of the latest conjecture, Morgan’s short position totals a whopping 3.3 billion ounces. If, therefore, the buzz about J.P. Morgan and silver is even half true, the prestigious investment bank could be cruisin’ for bruisin’.

For perspective, 3.3 billion ounces is roughly equal to:

1) One third of all the world’s known silver deposits;

2) Two times the world’s approximate stockpiles of silver bullion;

3) Four times the annual mined supply of silver;

4) 30 times the inventory of silver at the COMEX.

To repeat, short positions – even titanic ones – are no big deal, as long as the price of the underlying asset is falling. But if, inconveniently, it is rising, the spaghetti can hit the fan in spectacular and gruesome fashion.

The silver price is rising…a lot. From less than $10 an ounce two years ago, the silver price has more than tripled. Therefore, if J.P. Morgan does, in fact, hold a 3.3 billion ounce short position, every one-dollar increase in the silver price would produce a loss of $3.3 billion…at least on paper.

Unfortunately, Morgan cannot simply unwind this trade with a couple of mouse-clicks in an E*trade account. The position is too large, both in relation to the world’s physical supplies of silver and in relation to the paper “supplies.” (Morgan holds almost half of all short positions on the COMEX, which is essentially a “paper market” – participants rarely take delivery of physical silver).

To make matters even more dicey for Morgan, the supplies of physical silver are disappearing rapidly from the marketplace. Increasingly, the kinds of folks who invest in precious metals are also the kinds of folks who distrust intermediaries. These precious metals investors want to know that the shiny stuff is in their personal possession.

Meanwhile, the ETFs that hold precious metals are soaking up massive quantities of physical metal. Over the last 12 months, the silver ETFs around the globe have increased their holdings by nearly 100 million ounces – or almost as much silver as the entire inventory of the COMEX. The trend in gold is identical.

Total Known ETF Holdings of Silver

Therefore, as a result of soaring demand from both individual investors and ETFs, the physical stockpiles of gold and silver are atrophying in relation to the paper claims on both metals. This is not a pleasant picture for a short seller of silver.

Furthermore, the kinds of folks who tend to buy gold and silver are also the kinds of folks who have contempt for Wall Street…and for Wall Street banks like J.P. Morgan. So it should come as no surprise that a grassroots campaign has formed – the sole purpose of which is to punish J.P. Morgan for its attempted manipulation of the silver market.

“A viral campaign (Crash JP Morgue Video [below]) to buy a physical silver and ‘crash’ the bank is now spreading like wildfire on the Internet,” SFGate reports. “Just Google, ‘Crash JP Morgan Buy Silver’ [to learn more about it]… Those who wish to participate in squeezing the living daylights out of J.P. Morgan, may want to consider buying physical silver, silver futures and SLV.”

Maybe this story about J.P Morgan’s short position in silver is mere innuendo. Maybe not. But two facts are irrefutable:

1) J.P. Morgan is already under investigation by the CFTC for manipulating the silver market. “The investigation into the bank can be traced back to November 2009,” SFGate reports, “when London metals trader and whistleblower Andrew Maguire contacted the CFTC to report market manipulation prior to it actually occurring.”

2) Precious metals investors are increasingly keen to get their hands on physical gold and silver, rather than mere paper facsimiles.

Eric Fry
for The Daily Reckoning

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Eric Fry

Eric J. Fry, Agora Financial's Editorial Director, has been a specialist in international equities for nearly two decades. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short-selling.  Following his successes in professional money management, Mr. Fry joined the Wall Street-based publishing operations of James Grant, editor of the prestigious Grant's Interest Rate Observer. Working alongside Grant, Mr. Fry produced Grant's International and Apogee Research, institutional research products dedicated to international investment opportunities and short selling. 

Mr. Fry subsequently joined Agora Inc., as Editorial Director. In this role, Mr. Fry  supervises the editorial and research processes of numerous investment letters and services. Mr. Fry also publishes investment insights and commentary under his own byline as Editor of The Daily Reckoning. Mr. Fry authored the first comprehensive guide to investing internationally with American Depository Receipts.  His views and investment insights have appeared in numerous publications including Time, Barron's, Wall Street Journal, International Herald Tribune, Business Week, USA Today, Los Angeles Times and Money.

  • http://silveristhenew.wordpress.com Luke

    buy the physical baby!

  • Canoe

    Thanks for bringing this to my attention Eric!

  • doug

    Wow seems like I heard this rumor 10 years ago same bank but then it was gold .I don’t believe it just another conspiracy theory that will be forgotten when it never happens .

  • Andrew

    Erm.. If only it was so Doug. Who do you work for then, JPM I’m guessing? Buy that Silver/Gold people! Jump in on the next correction and hang in!!!

  • http://www.buysilvercoins.org.uk buy silver

    Even without the CFTC investigations silver is probably a great buy, just on fundamentals alone. It is one of the best electrical conductors known to man, and is used in a growing number of electronic devices, from mobile phones to laptops.

  • ejhickey

    Been buying for two year and taking delivery.

  • http://fishyculture.com claire

    Ah – the silver vigilantes and the battle cry… “Crash JP Morgan – buy silver!” :)
    I would sure appreciate any votes for my video at crashjpm.com – mine is #36. Thanks! And

  • Joe

    I rike money. . .

  • steverino

    in 1907, j.p. morgan, the dude, himself, provided the bail-out liquidity to avoid a melt-down.

    uncle sugar’s very own personal banker.

    shortly thereafter, the “need for a central bank” began to be “felt, politically”, leading to “The Creature From Jekyll Island” in 1913. the morgan bank has been at the helm ever since, in the flagship of central banksters.

    how they doin?

    hard to tell given the current accounting rules for banksters; and the fact that no one in washington seems to be able to keep track of anything, especially money. they’re probably insolvent like many of the shelled-out corporations in our shelled-out nation.

    lotsa great bonuses for all the smoke-and-mirror crews, but dude, WHERE’S OUR COUNTRY?

    hi! i’m from the FBI. the rich people we work for and protect got their money the old fashioned way: they STOLE it! from YOU!

    p.s., you morons: we help them do it! it is VERY good work!

    any questions?

  • fred

    470 million oz in silver etf’s? No way, I would bet a 10oz ag bar its waaaayyyy less than that. Read the docs on the SLV. (JPM is custodian) The SLV will prove to be another JPM magic trick. If it blows up the banksters will try to settle their comex shorts with SLV stock-but that silver at the SLV will be long gone by then and there will be a mad rush to physical. JPM meet Lehman-just a dream as the FED will bail them out with a mouse click-but silver will be past 100 by then. Get physical.

  • Mihail

    Got my 5000 thousand ounces under my bed,my friends also have tens of thousand,all physical.We can do this.Freedommmmmmmmmmmmmmmmmmm

  • vdv

    Why is JP Morgan pronounced as JP Morgue in the video?

  • vdv

    The title says JP Morgue, thought the British accent was a little off ;). 3.3 billion ounces would be 10 coins for each man, woman and child, not a whole lot to use as currency.

  • DRUNK AND DISORDERLY

    Among the cries to audit the FED, perhaps there should be audits of the SLV and GLD ETF physical holdings… Any paper that is U.S. dollar denominated is suspect.

    Silver or gold will always prevail against fiat money whether as an investment or insurance.

  • John

    l like silver so much l bought 35k acres in a known sliver/tin trend in SA. One can but try.

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