Silver analyst Jason Hommel issued an email update to subscribers on JP Morgan’s alleged silver manipulation, and why Hommel expects silver to surpass $500/oz by the end of the bull market. (This is actually bearish for Hommel, as in the mid-2000′s his long term silver call was for $8,000 an oz!
Hommel discusses why contrary to Blythe’s claims of hedging for clients, JPM likely has a natural short silver position as they owe clients on the OTC market 10-20x more silver than is produced annually!
From Jason Hommel:
Allow me to bring you up to date on what you need to know about JP Morgan’s manipulation of the silver market.
It is being exposed, and JP Morgan is failing, and losing money on their scheme.
On April 5th, we were given the gift of JP Morgan’s Blythe Masters giving a TV interview on CNBC where she was trying to claim that JP Morgan does not hold any position in the silver market, but rather, is hedging client long positions in silver.
Blythe says, “We store significant amounts of commodities, for instance silver, on behalf of customers. We operate vaults in New York City, in Singapore and in London. Often when customers have that metal stored in our facilities they hedge it on a forward basis through JPMorgan, which in turn hedges in the commodities market,” she said.
“If you see only the hedges and our activity in the futures market but you aren’t aware of the underlying client position that we’re hedging, then it would suggest inaccurately that we’re running a large directional position,” she added. “In fact that’s not the case at all. We have offsetting positions. We have no stake in whether prices rise or decline.”
The article and TV interview are here:
JPMorgan Not Speculating on Commodities: Blythe Masters
http://www.cnbc.com/id/46969993
Note the phrase: “the underlying client position that we’re hedging.”
Excuse me, my instinct tells me that clients don’t want their long silver positions hedged, or sold short. Why would a client with a long silver position want the bank to create an offsetting short position for the client? If you buy stock or shares in a company, do you want your brokerage firm to short the company you just bought to “protect” you from upside gains? This explanation makes no sense. A client with such a long and short position would also have to pay storage fees on the long silver position, and then lose all of any upside gains due to the short position. It makes no sense, in the way that Blythe is trying to get us to understand the words she is using.
As I understand things, JP Morgan (and many other banks, but mostly JP Morgan) has many clients who want to be long silver, in the OTC or “Over The Counter” market and LBMA market, up to perhaps $100 billion to $200 billion worth of “silver” in “accounts”. But JP Morgan (and other western banks) never went out and bought this silver in the first place, because there does not exist $100 billion to $200 billion worth of silver to buy in a world that produces and mines only about $6 billion (at $10/oz.) to $21 billion (at $30/oz) worth of silver per year.
This puts JP Morgan (and other banks) in a natural short position, as they owe their clients 10-20 times more silver than the world produces annually. JP Morgan thus has this massive natural silver short exposure. To protect the bank from the silver short position, JP Morgan must cap silver prices, by shorting silver on the COMEX, where prices are set. Otherwise, as silver prices rise, the bank loses more and more on the silver they are supposedly holding for their clients. Only in that sense, does JP Morgan have “offsetting positions”; in other words, shorts on COMEX to back up or shore up JP Morgan’s other losing short positions (client long positions)!
JP Morgan cannot offset such OTC positions in the OTC market. Except, in the sense I just explained, every single additional “sale” of silver in the OTC market protects and hedges every other sale, as all sales of “silver” in “accounts” to customers have the cumulative effect of preventing people from buying and taking delivery of real physical silver which would drive the silver price up.
The key reason why the London LBMA and OTC silver selling is so successful is that nobody ever asks for delivery of the silver, because there is a 20% tax on silver delivery in London. See here: http://en.wikipedia.org/wiki/Silver_as_an_investment#Taxation
There were two good commentaries on JP Morgan’s Blythe Masters TV appearance, here:
Mike Maloney breaks down Price Manipulation in the Gold and Silver Market
http://rt.com/programs/capital-account/maloney-manipulation-gold-silver/
The Russia Today TV show is 27 minutes long, and begins with Jeff Christians shocking admission at the CFTC hearings that the silver market trades 100 times as much silver as really exists to back up all the positions and trades.
JPM’s TV Appearance
http://www.silverseek.com/commentary/jpm%E2%80%99s-tv-appearance
JP Morgan first admitted having (or trying or wanting to cover) a short position in silver back in December 2010, about a year and 5 months ago. This was reported by the Financial times, and by Barron’s, and others.
JPMorgan cuts back on US silver futures
http://www.ft.com/cms/s/0/7d699ca4-06ea-11e0-8c29-00144feabdc0.html#axzz182HTfhCl
Report: J.P. Morgan Cutting Back Big Bets Against Silver
http://blogs.barrons.com/focusonfunds/2010/12/14/report-jp-morgan-cutting-back-big-bets-against-silver/?mod=rss_BOLBlog
What’s excellent today is the comparison of today’s explanation to JP Morgan’s lie from a year and 5 months ago. Back then, JP Morgan was trying to claim they were closing out, or had closed out, their short positions in silver. Today, a year and 5 months later, they supposedly have this rational excuse that their firm’s short positions in silver exist to offset other client long positions.
Both explanations are lies, obviously. What I like about the lie of “offsetting client long positions” is that it is a lie disguised by the truth. The truth is that they do have client long positions that would likely bankrupt the bank if they filled those positions and tried to buy silver that does not exist, and to hedge that exposure, they must manipulate the silver market’s prices lower. Thus, the current lie is sort of like an admission of the truth, but they are being very deceptive and tricky about how they present it. The best kind of lie is simply a distorted version of the truth, of course.
The New York Post exposed JP Morgan’s manipulation of the silver market back in May, 2010, when they exposed an ongoing investigation by the CFTC AND the US Department of Justice into JP Morgan’s silver trading.
Feds probing JP Morgan trades in silver pit
http://www.nypost.com/p/news/business/feds_probing_jpmorgan_trades_in_gZzMvWBqOJpB55M7Rh9vwM
That article came out a month after my complaint to the US Justice Department in April, 2010, a month earlier.
http://silverstockreport.com/2010/doj.html
My readers told me they wrote to the US Department of Justice about silver manipulation, without mentioning any company names, and the US Department of Justice sent back form letters saying they were looking into JP Morgan’s activities in silver, mentioning JP Morgan by name!
So, what about my claim of the size of those OTC silver positions being in the range of $100 billion to $200 billion, which are far larger than the silver that trades on the COMEX?
Well, those are not my claims, but rather, those are numbers produced by the BIS, the Bank of International Settlements. I have repeatedly reported on these figures here:
BIS Changed Silver Data
(From $203 to $93 Billion in Silver Liabilities?)
by Jason Hommel, July 6th, 2011
http://silverstockreport.com/2011/BIS-DATA.html
Silver News Explodes; JP Morgan Admits Guilt!
(JP Morgan admits they are short silver!)
by Jason Hommel, December 15th, 2010
http://silverstockreport.com/2010/jp-morgan-silver-short.html
BIS Admits $190 Billion Silver Fraud
(Almost, if you know where to look!)
by Jason Hommel, April 6th, 2009
http://silverstockreport.com/2009/OTC-silver-fraud.html
The discrepancy or change in the BIS data from $203 Billion of “Other Precious Metals” (in other words, silver) down to $93 billion is still being reported at the BIS website.
From the 2010, June report: $203 billion for the June, 2009 period.
http://www.bis.org/publ/qtrpdf/r_qa1006.pdf
From the 2010, December report: $93 billion for the June, 2009 period.
http://www.bis.org/publ/qtrpdf/r_qa1012.pdf
See Table 22a, Amounts outstanding of OTC equity-linked and commodity derivatives, in the category of “Other Precious Metals”. Scroll down about 90% into the pdf documents.
This BIS data is the smoking gun of manipulation in the silver market.
There is no way that the big banks can increase OTC shorts by $100 billion in silver in 6 months, when the world barely produces $15 billion of silver per year, without the silver price going bananas to the upside, unless this kind of silver derivatives exposure is silver that is owed to clients, which is essentially a naked short position, or silver that was “bought” by the customers, but never purchased by the banks in the open market, purposefully and maliciously and with the specific intent to prevent the silver price from running away to the upside, and to keep the fraud of the paper dollar going as long as possible. This is really revealing the fraud of the multi trillion dollar paper money scam that the world has going.
There is no reason to disbelieve the BIS numbers when the banks accidentally reveal data that condemns them, and exposes the silver short selling fraud; and every reason to suspect bad faith and nefarious intent when they later edit the data at a key time, Dec. 2010, when JP Morgan is being investigated by two arms of the US Government.
JP Morgan first took on this silver short position when silver was about $20/oz. Later, the silver price was manipulated down to $9/oz. Today, with silver at about $32, we can see that the manipulation game is failing.
All frauds eventually fail completely. This one will, too. In the end, holding silver in accounts with large banks will not help you. You need real silver in your own real vault that you have personally lifted and stored away. Any other kind of silver that others hold for you is likely fraud, and will not protect you in the event of the collapse of the dollar or the collapse of the financial system or the collapse of your brokerage company.
By the time this fraud is exposed fully, and by the time a mere 1% of people or money in America starts buying silver, such as only about $180 billion in the banking system, the silver price will exceed $500/oz. and large firms such as JP Morgan will either be bankrupt, or they will be bailed out to the tune of trillions to keep the financial system together, which will create further inflation that will drive 2% of people into silver, and create the very runaway metals market that will just not stop until all paper money and paper accounts are destroyed for generations.
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I strongly advise you to take possession of real gold and silver, at anywhere near today’s prices, while you still can. The fundamentals indicate rising prices for decades to come, and a major price spike can happen at any time.
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once all those trillions of dollars get it figured out that silver is the way to go I can see silver at 8,000.00 an ounce.
Awesome Article!!
One facet regarding the potential price of silver is the estimate that there is only 1/5 as much above-ground silver as gold in the world. The implication of this –in the event of say, the collapse of the paper-trade due to a publicly recognized shortage of precious metals– the world would spontaneously re-establish free market, such that silver, sharing the honor with gold as a monetary commodity– would naturally obtain a price five times greater than gold. At this instant for example, silver would be priced at $8,370/oz. However, bear in mind the current price of gold is equally suppressed by the derivatives trade, thus the “real” price of silver should be estimated in the tens of $thousands.
But all this is naturally a vicious circle. If such prices were to be realized, then it would also signify the complete and utter collapse of all modern fiat currencies. Why? Because they are all directly or indirectly pegged to the present purchasing power of the dollar.
So this is where we stand: despite the many analysis I’ve read recently that provide some timetable depicting how and in what way more serious economic conditions will unfold by 2015 or 2017, etc., etc., etc. — they all represent relatively conservative and narrow assessments that seem to ‘blythely’ ignore the logical effect of a recognized shortage.
Richard Russel’s interview on King World today is a case in point, wherein he ironically remarks: “If the government does not supply any
additional stimulus, but it does supply additional massive QE’s, this
will be a long, drawn-out situation, probably not becoming toxic until
the years 2015 to 2017. This period will ultimately see pressure on the
dollar with an accompanying collapse of stocks and bonds.”
Give me a break. He’s clearly not taking into account the accelerating world demand for gold and silver, and is projecting conditions as they stand at this instant to persist for three to five more years??
In reality, the instant that the actual equation between demand and supply can no longer be hidden, the entire world economic monetary system as it currently exists is most likely to vaporize in the course of say, a sunny Friday afternoon.
But that’s just my two grains worth.
Until I hear of a major user such as an electronics firm or a solar panel manufacture crying that they can NOT get silver I don’t think we will see any major movement in the price. I would love to see a price above $50. I used to believe that the CFTC and other government agencies would keep things honest but I now understand that they are all corrupt and working together. When there is an ACTUAL shortage of silver you will hear it first from the manufactures and major users of silver. Just so you know….I’ve been a buyer of silver since 2000 and there is no doubt in my mind that it is the investment of the century.
the ‘manipulation’ discussion is misdirected and misunderstood.
If silver went to something even as modest at $300-500 an ounce would focus attention of every person in the world. Like 1980 when silver went up 2000%, the silver world would go absolutely nuts. The mining and producer interests would go into warp drive to extract every ounce of silver they could, even opening up mines that heretofore were tapped out. I live in Nevada, just 40 miles from the Comstock. There are mines being reactivated with price of silver at $31 per ounce. Tailings are being culled for silver as well. The production would end the soon-to-occur shortages, dropping the prices. But until then the ride will be exciting.
My question would be when to exit silver through strategically planned sales into price escalation as well as the purchase of alternate assets that have real value.
Gandi,
We are no doubt largely on the same page, but I am of course, well aware that industrial users are not yet crying ‘shortage.’ But a “shortage” is defined as a state wherein demand exceeds supply, is it not? And measured in terms of paper, demand clearly outstrips supply. During the CFTC hearings in 2009 for example, we discovered that the precious metals market was already leveraged at least 100:1 –meaning that actual world demand is already one hundred times greater than at least the warehoused supply. The problem faced by markets such as the COMEX is, if they are forced to physically restock to meet even a tiny percentage of this demand, it will invoke the incipient catch-22 of their position and produce the public realization that an inherent shortage already exists, and I think you put too much emphasis on the role industrial consumption. in all probability, neither solar voltaic manufacturers nor the average citizen will play any great part in unfolding events. The real buyers have already plunked down their money; they merely need to feel sufficiently pressured to demand delivery. And at this point, if there is just a one or two percent increase in this demand then, well, “Katy bar the door!”
Bring on silver at $500 but at the moment I would just like to see it above $40 it’s been a tough year for people like myself who only started stacking this time last year !
@AGXIIK
“My question would be when to exit silver through strategically planned
sales into price escalation as well as the purchase of alternate assets
that have real value.”
I think different people will have different answers. I’m a pretty simple guy and I’m not sure what you mean by the first part of the question…
“My question would be when to exit silver through strategically planned
sales into price escalation…”
I can only give you my view/opinion, of course. If by that you mean, sell your silver back for paper money, I can only say that I don’t believe I would ever do that. Even if I put it into an Account for use as Electronic Gold Currency, I would probably be pretty distrusting unless I knew the Banker. As in, I get to know him and I can say, “I know where you live!” Lol. I’m fairly poor and don’t have what I consider to be all that much of a collection, so I value it highly!
The above might be a bit of an overstatement on my part, as I feel that I could trust Eric Sprott or James Turk’s vaults. That’s probably because I have got a feel for them by watching them on a number of different video and audio presentations on the Internet. Enough to where I have become comfortable with their moral character and integrity. Of course, that’s if I had enough stacked that I felt that I need to have my collection stored in a vault.
Cheers
Nice! I hope that the manipulation could stay for a long time so that we could afford more physical silver.
Ender,
Gandi,
How long can the paper game be kept afloat? Keep in mind that big money around the world is currently buying as surreptitiously as possbile. At the moment, it is therefore entirely to the advantage of everyone that prices be kept as low as possible. (Just ask AGXIIK’s wife; she has a “turd eye” for this sort of thing : ) In any event, the breaking point will therefore occur when orders at this level can no longer be met. There are noises already that this moment is approaching quickly. At that point, the motivation will reverse and those who can no longer obtain any metal will want their present stock to increase in value as quickly as possible. These parties will then send up a great hew and cry, and like yelling ‘fire!’ in a crowded theater, the rush will then be on in earnest. I have mixed feelings about this, because the prospect is both exciting and horrifying, because it’s going to set in motion the Great Conflagration of fiat currencies around the world as they all become effectively worthless for purposes of international trade settlements when compared to gold and silver. The disruptions due to the chain reaction of events that will follow will be severe and life-altering for everyone on the planet. I fear fate takes no prisoners.