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Citizens Look to Squeeze Silver Manipulator
By Eric Fry
There’s a lot of
rumor, buzz, innuendo, chitchat and scuttlebutt about the precious
metals markets these days. Most of the buzz is about JPMorgan and
silver. Rumor has it that JPMorgan has amassed a whopping short
position in silver.
The scuttlebutt, according to Scott Rubin of financial
website Benzinga.com, is that JPMorgan “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 U.S.
dollar.”
“By selling massive amounts of paper silver in the futures
market,” Rubin continued, “JPMorgan has been able to
suppress the price of the precious metal. It is believed 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,” Rubin notes, “rumors have been
swirling on the Internet that JPMorgan’s massive short position
is about to blow up in its face in the form of an almighty short
squeeze and potential COMEX [Commodity Exchange] 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 JPMorgan and silver is even half true, the prestigious
investment bank could be cruisin’ for bruisin’.
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For perspective, 3.3 billion ounces is roughly equal to one-third of
all the world’s known silver deposits; two times the
world’s approximate stockpiles of silver bullion; four times
the annual mined supply of silver; 30 times the inventory of
silver at the COMEX.
Short positions—even titanic ones—are usually 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 a
spectacular and gruesome fashion.
The silver price is rising by a lot. From less than $10 an ounce two
years ago, the silver price has almost tripled.Therefore, if JPMorgan
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 online stock trading 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”— where 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 those who distrust intermediaries. These precious metal
investors want to know that the shiny stuff is in their personal
possession.
Meanwhile, the ETFs, or exchange-traded funds, 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—almost as much silver
as the entire inventory of the COMEX. The trend in gold is identical.
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 type of people who tend to buy gold and silver are
also those who have contempt for Wall Street and for Wall Street
banks like JPMorgan. So it should come as no surprise that a
grassroots campaign has formed, the sole purpose of which is to
punish JPMorgan for its attempted manipulation of the silver market.
“A viral campaign to buy physical silver and ‘crash’
the bank is now spreading like wildfire on the Internet,”
Rubin reports. “Just Google [the words] ‘Crash JP Morgan;
Buy Silver’ [to learn more about it]. . . .Those who wish to
participate in squeezing the living daylights out of JPMorgan may want
to consider buying physical silver, silver futures and [the iShares
Silver Trust, which issues stock backed by silver].”
Maybe the story about JPMorgan’s short position in silver is
mere innuendo. Maybe not. But two facts are irrefutable:
1. JPMorgan is already under investigation by the Commodity Futures
Trading Commission (CFTC) for manipulating the silver market.
“The investigation into the bank can be traced back to
November 2009,” Rubin reports, “when London metals
trader and whistleblower Andrew Maguire contacted the CFTC to report
market manipulation prior to it actually occurring.”
2. Precious metal investors are increasingly keen to get their hands
on physical gold and silver, rather than mere paper facsimiles.
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(Issue
# 1 & 2, January 3 & 10, 2010)
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