Whispers from the Edge of the Rainforest: COMEX update

Monday, March 7, 2011

COMEX update

An evening post for you. Make sure to check out the earlier post "Is a desperate JP Morgan now the only large institution shorting the Silver market?"

The numbers are in from the COMEX and what is developing is unprecedented in COMEX history.

The number of open contracts standing for delivery of physical silver for the March deliver dropped from 1876 to 1675 for a drop of 201 contracts (each contract representing 5,000 ounces of silver), but there were only 5 delivery notices today.

And it's that lack of physical delivery that is the story.

According to Harvey Organ, "for the 5th straight day we have had little notices to deliver. Actually the only delivery has been through the customer who loaned his silver to the dealer to settle upon 1.2 million oz. The 201 contraction of OI for March can only mean that these were settled with cash and a handsome profit."

It is very clear the COMEX is seriously stressed to deliver the physical silver for the March delivery.

The topic of JP Morgan's massive short increase in February is generating lots of discussion in the blogosphere. The fact that JP Morgan increased their short position by 5,880 contracts (or 29.4 million ounces) in a month where the price of silver rose by 25% is astonishing. The general consensus is that the price of silver would almost assuredly be over $50/oz right now if JP Morgan had not dumped 30 million ounces of paper silver on the market. The fact that silver rose by $7 while this wsas occuring is a testiment to the huge demand for silver.

It is worth noting that the current premium to NAV of the Sprott Physical Silver fund is now 20%.

If you are unfamiliar with the terms, regular open-end mutual fundsh are bought and sold directly from the fund company at the net asset value (NAV) of their portfolio securities.

ETFs and closed-end funds trade at prices determined by the market forces of supply and demand. A fund that trades at a price higher than its NAV is said to trade at a premium to its NAV.

Sprott is currently trading at a premium of 20% over it's net asset value.

This is a strong indication of the reality that actual phyiscal silver is valued higher than the price that manipulated paper silver is trading at.

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