Thur Post #2: Is Silver setting up for a massive price explosion at the end of September?

It's interesting to watch the movements of Silver in and out of the COMEX today.

Over the past 4 months there has only been 1 deposit of  deliverable Silver into JP Morgan's eligible vault.

But today JP Morgan announced they had increased their eligible COMEX Silver inventory from 180,247 ounces to 586,381 ounces.  That's a 225% increase overnight!

With the likely announcement of Quantitative Easing 3 by the US Federal Reserve in 2 weeks, Silver observers are wondering if this is a sign that JPM is gearing up for a massive amount of longs actually standing for delivery in September? 

If so Silver may be getting ready for a huge move up at the end of month/beginning of October.

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Silver supply continues to dwindle on the COMEX (updated)

The ongoing saga of dwindling available Silver for delivery on the COMEX continues unabated as the demand heats up.

After yet another day of withdrawls, the total amount of registered Silver drops to a new all-time low of 26,814,648 ounces!

The pace of silver depletion in the registered category is nothing short of astonishing.  If it were to continue at the pace it has been on since March, the COMEX would literally be depleted of registered Silver to make deliveries within 250 days.

It is interesting to note, however, that the eligible catagory of Silver on the COMEX has increased.  While not available as Silver that can be delivered to settle contracts, the total now stands at 101,719,841 ounces.

Not surprisingly, JP Morgan and the Commercial shorts have been adding to their net short position as Silver's price has been going up. Presumably that pace will really pick up next week as they desperately try and keep the price under $40.

As a percentage of total COMEX inventory, the short position is up to 185% from 164% last week.

As a percentage of Registered Inventory, JP Morgan and the Commercial shorts are now short 699% of the registered Silver category - a level which is almost the highest ever.

Below is a graph of the Registered Silver Inventory for 2011.  Since January inventory has dropped from over 45,800,000 ounces to  26,814,648 ounces today (click on image to enlarge).

It's important to note, the significance of this inventory decline on the COMEX is not that the world is running out of silver, far from it.

It is that the amount of silver available for sale, in large quantities and the appropriate forms, is in increasingly short supply, down to record levels AT CURRENT PRICES.

This is significant for two reasons.

Such supply/demand imbalance, in the absence of supply or demand shocks, is often the result of long term artificial price manipulation and external forces in the market that prevent a market clearing price.

Eventually the market imbalance will be resolved, one way or the other.  The banking cabal has tried to create available Silver by crushing the price downward in a hope Silver holders would dump their physical Silver.

That has not only failed to materialize, but Silver supply has actually tightened.

The shortage of Silver at the COMEX can be resolved with a significantly higher price. And I believe we are going to see that in the not too distant future.

It appears things are heating up again for another possible big breakout in Silver price.

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Sat Post #2: On the topic of Silver

There are some interesting developments brewing in the precious metals arena which are worth noting.

As faithful readers know, we have devoted considerable time to covering the COMEX, which has owned an effective monopoly on silver price discovery for decades.

The COMEX churned out over 800 million ounces of silver futures and options on average each day in April, a level of trade volume which dwarfs both the physical and the other (known) paper silver markets, combined.

One cannot help but take note of the obvious disconnect now emerging between the manipulated COMEX price discovery and the physical market for Silver.

There are now only 28 million ounces of registered Silver inventory in the COMEX to back up all of that paper trading. Demand for physical Silver is rapidly depleting the actual amount of available Silver.

(And it is placing the COMEX is a dire situation.  If a mere 5% of all of that buying actually stood for delivery; the entire inventories would be more than wiped out.)

The US Mint recently stated that, "demand for American Silver Eagle Coins remains at unprecedented high levels." Similar reports have been received from Australia's Perth Mint, the Austrian Mint and the Royal Canadian Mint.

The US mint just released their report on silver for the month of June and the total silver eagles sold amounted to 3.4 million oz. At this rate the mint sales for all of 2011 would equate to 40.8 million oz.

The USA nation only produces approximately 40 million oz a year so the entire production must go to the mint first - just to produce silver eagles. This means the COMEX and others must import silver from England, Canada, Mexico and other places to fulfil their duties.

The Chinese, who were net exporters of silver only four years ago, imported 300% more silver in 2010 than 2009 and such large quantities of imports are expected to continue.

Last year, Indian silver imports increased nearly six-fold, and this year consumption is expected to rise nearly 43% according to the Bombay Bullion Association.

So what we have is a continuing, worldwide, surging demand for phyiscal Silver.  Yet the paper price of is being manipulated downward?

Which brings us to the paper market, aka the COMEX.

The positions this week of the infamous 'shorts'- whom are responsible for that paper price manipulation of both Silver and Gold - made some noteworthy moves that are setting off alarm bells for those who follow these markets.

There has been a truly historic one-week plunge in the commercial net short positioning for Gold and Silver futures traded in New York on the COMEX division of the CME this past week. 

In Gold, commercials got out of nearly 17% of their short exposure. That is the largest nominal one-week reduction in commercial net short positioning in New York Gold futures since August 12, 2008, during the depths of the Great 2008 Panic (just before Gold started to rise significantly).

In Silver, the commercials covered or offset a very large 6,398 contracts or 18% of their net short positioning from 35,564 to 29,166 COMEX contracts net short. The open interest for silver futures dropped 5,908 lots to just 114,330 contracts open, the lowest level of open interest for silver futures since March of 2010.

More importantly the relative commercial net short positioning for silver plunged from an already quite low 29.6% to a very low 25.5%.  That is the lowest relative commercial net short positioning for silver futures since October 28, 2008 when Silver traded at it's 2008 Great Panic low of $9.19.

All of this comes a month after massive short covering during the month of May when the price of Silver was systematically taken down over 30% by the unprecedented margin hikes by the CME.

So while many pundits are calling for Silver to drop back to $25 or $20 per ounce, it would appear that the commercials - the largest, best funded and presumably the best informed traders of gold and silver futures on the planet - are positioning themselves for something entirely different.

September is shaping up to be the month where things could move dramatically.

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COMEX phyisical silver hits new low

On June 7th we posted about how the COMEX had hit fresh all time lows for physical silver reserves.

On April 20th the physical ("Registered") silver held in COMEX warehouses was just over 41 million ounces. By June 7th that total had dropped to 28,773,375 ounces.

Now? 

The COMEX is now down to 27,924,074 ounces as the Brink's warehouse reports that they have suffered a 9% draw down in both registered and eligible silver (click above image to enlarge).

The COMEX's  supply of physical silver has now dropped 32% from where it was 2 months ago. 

And while the COMEX insisted during the first month that the 'reclassification' of phyisical silver was simply a 'very temporary' condition, it is proving to be anything but very temporary.

The fact of the matter is that registered silver at the COMEX has not posted an uptick in over 3 months. And all the while the price of spot and futures silver continues to trend lower as the cartel continues to short the paper price of silver.

Why is physical silver being snapped up at alarming rates while the price is supposedly 'overvalued'?

Is it overvalued or is it simply 'on sale'?

You know our thoughts on the matter. And the dwindling supply seems to reinforce it.

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COMEX Physical Silver hits fresh all time lows

The Physical Silver watch at the COMEX continues as news is received that the physical ("Registered") silver held in COMEX warehouses has dropped from just over 41 million ounces on on April 20 to a new low of 28,773,375 ounces today.

This is a further drop of 2.9% from the total we outlined last Thursday and represents a decline of 30% over the last 6 weeks.

Critics have argued that the 'supposed' 41 million ounces were never actually there to begin with which is why the COMEX has been facing a short squeeze in the delivery months of Dec 2010, March 2011 and June 2011.

The latest 'adjustment' is due to a withdrawal of physical from both Brinks and Scotia Mocatta, as well as the ongoing reclassification of 438,708 ounces of Registered into Eligible silver over at HSBC.

With each passing week the COMEX appears to be more a slick county fair Carney game as opposed to true method of price discovery for Silver.

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The COMEX supply of Silver continues to decline, Scotia loses 60% of it's Silver

Faithful readers may recall that back on April 28th we made a post about the COMEX losing 20% of available Silver to 'reclassification'.

Part of that 'loss' came when Canada's own Scotia Bank, our nation's largest bullion depository, reclassified a whopping 5.2 million ounces of silver from Registered to Eligible status.

Scotia Bank precious metals division (Scotia Mocatta) transferred 25% of the silver it possessed from the "registered" category (or deliverable physical) to the "eligible" category (or "undefined").

And when Scotia Bank moved 25% of it's silver from 'registered' to 'eligible', it took that silver out of the COMEX pool that was available to be delivered.  This move dropped the vault's true holdings from 11.8 million ounces to 6.5 million. And the 5.3 million ounces that ScotiaMocatta moved represented 5% of the  COMEX supply (at the time) of 44 million ounces.

This 'reclassification' was dismissed as a routine move that happens from time to time and that it was only a temporary condition that would soon correct. 

Curiously this was followed by reclassification's from two other depositories, HSBC and the Delaware Depository.

When all was said and done the 'reclassified' silver reserves dropped the total "physical" silver at the COMEX by almost 20%, or from 41 million ounces to 33 million ounces.

And the 33 million ounces is down from over 100 million ounces just over a year ago.

Now... there are those who that the COMEX does not even have that 33 million ounces.  They way that what is stored 'on the record' is actually an accounting sleight-of-hand and that the silver has been leased out or spoken for in some other fashion in the giant fractional reserve silver game being played by the big bullion banks.

This, critics allege, is why the COMEX has been having so much difficulty providing delivery of physical silver on futures contracts in a delivery month.  Records of silver deliveries in and out of the COMEX vaults don't match the contracts being settled leading critics to charge the COMEX is settling contracts, not with physical silver, but with cash payouts plus a sizable cash premium.

The problem with this, of course, is that cash settlements prevent the COMEX from functioning as a true discovery vehicle for the price of silver.  If the COMEX is unable to deliver physical silver at these prices, then the price of the metal would rise to seek the level at which physical silver becomes available (i.e. the level at which those who hold it are prepared to part with it).

Thus the levels of Silver on hand at the COMEX is of keen interest to those who invest in Silver.

Are the 'reclassifications' really temporary or are they indicative of a problem with the silver supply?

Well the latest COMEX warehouse data appears to indicate the problem may not be as 'temporary' as those at the COMEX would like you to believe.

For the first time ever total registered silver has dropped below 30 million ounces.

This comes after yet another 1,456,488 ounce "adjustment" of warehoused silver from Registered To Eligible at Scotia Mocatta.

As of June 1st, total Scotia physical silver was now 4,740,447 ounces, a 24% drop overnight, and a massive 60% drop from the total which we profiled on April 28th.

Curiously the total silver totals at the Scotia Mocatta vaults has barely budged. The only thing that has changed is the shift from real silver to "Eligible", or that which has no warehouse receipt issued against it. This Silver has been described as "a private arrangement" which has nothing to with the Comex.

But the fact of the matter is that Scotia Mocatta has lost 60% of its physical Silver in one month to 'reclassification' and the total available deliverable Silver at the COMEX is now below 30 million ounces.

That means that if 6,000 contracts stood for delivery (each contract represents 5,000 ounces), the COMEX doesn't have enough physical Silver to fulfill the delivery.

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COMEX loses 20% of it's Silver

A stunning story is developing wherein it appears the COMEX has 'lost' 20% of it's Silver, a story which has played a large part in Silver's price gaining over $3 yesterday.

First of all a refresher on what the COMEX is.

There used to be two exchanges in New York. The New York Mercantile Exchange and the Commodity Exchange, Inc (COMEX). In 2006 these two exchanged merged and became one. It is now the New York Mercantile Exchange (NYMEX) but is divided into two parts, the NYMEX Division upon which is traded such commodities as oil, gas, palladium and platinum and so forth, and the COMEX Division on which gold, silver copper and aluminum is traded. On this exchange are traded 'Future Contracts' of gold and silver.

For a detailed explanation of the COMEX, please read this post from February 21st.

The evolving big news started when our own Scotia Bank, Canada's largest bullion depository (and one of five total), reclassified a whopping 5.2 million ounces of silver from Registered to Eligible status.

Scotia Bank precious metals division (Scotia Mocatta) transfered 25% of the silver it possessed from the "registered" category (or deliverable physical) to the "eligible" category (or "undefined").

What is the distinction between the two categories?

Some like to say that basically "registered" is real silver and "eligible" is somewhat questionable silver.

The registered category of COMEX warehouse bullion stocks generally refers to gold and silver bars against which COMEX warehouse receipts are outstanding. The registered stocks are held for investment and not for commercial purposes. The registered category is the total pool of gold and silver available at any time to meet delivery requirements under expiring futures contracts or to establish initial futures contract positions through a transaction called exchange-for-physicals.

In comparison, the eligible category of COMEX warehouse bullion stocks generally refers to bullion held in the warehouses that meets the specifications of an acceptable COMEX bar (proper weight, size, purity and refiner) but does not have a COMEX warehouse receipt issued against it. For example, an investor might purchase several 1,000 oz. bars of silver from a dealer and then deliver the bars for allocated storage at a COMEX warehouse. This is a private arrangement and has nothing to do with the COMEX. Unless these bars are officially registered (the easiest way to do this is through the aforementioned exchange-for-physicals), they will remain in the eligible category until withdrawn from the warehouse by the investor.

Thus, the appropriate way to treat eligible COMEX warehouse bullion stocks is that they represent metal that could potentially be registered at some point in the future but cannot presently be used to make delivery under a short futures contract.

So when Scotia Bank moved 25% of it's silver from 'registered' to 'eligible', it took that silver out of the COMEX pool that was available to be delivered.  And the 5.2 million ounces that ScotiaMocatta moved represents 5% of the previous COMEX supply of 44 million ounces.

The reason given last week was that: "due to a reporting reclassification, 5,287,142 t oz was moved from Registered to Eligible." It was explained that this does happen from time to time and was not unusual.

But the story does not end there.

In the past week two other depositories have done the same thing.  HSBC and the Delaware Depository have 'reclassified' silver reserves which means that the total "physical" silver across the entire Comex universe has now plunged by almost 20%, or from 41 million ounces to 33 million ounces.

In the span of one week the COMEX has lost 20% of it's deliverable physical silver!

This is big news.

The COMEX explains the adjustments here and advises that:

• the change has been made to reflect a change in the reporting of metal from the Registered category to the Eligible category. This change reflects paper warrants that have yet to be converted to electronic form. The metal represented by these paper warrants, which will now be reported in the Eligible category, will continue to remain eligible for delivery against COMEX futures contracts provided holders of the paper warrants convert them to electronic form.

It's possible that it is nothing more than an odd, last minute paper to electronic contract conversion.  And it is possible that it just so happened to mysteriously result in a 20% drop in the physical silver across the entire Comex universe.  And it's also possible that it's a coincidence that this all comes at a time when silver is within cents of breaking the all time nominal high.

But you have to wonder... how many more such "warrants" exist in the system?  There wouldn't happen to be enough that the COMEX would have to reclassify another 33,322,807 million ounces of registered silver, would it?

Could this be the real reason the COMEX struggled so much during the last delivery month to make good on silver contract deliveries of 4 million ounces when they supposedly had 41 million ounces in the system? Could it be that all of those 41 million ounces are nothing more than paper warrents?

The website FMXConnects has an interesting take on the whole situation.

FMX notes that Silver is the perfect product to buy if you genuinely think it is undervalued, want to de-dollarize your reserves, or just want to screw with the Banks who have become complacent over the years doing metals “carry trades” wherein they lease Silver, short it and take the proceeds to invest in something with a higher yield, betting they can get producers to sell to them when needing to cover.

If you have the money to do it, silver is the perfect product because:

1. One can control the Silver market with much less capital than gold.
2. Silver does not have currency status, gut Gold does. Every Central bank has gold in its reserves. None appears to have any have Silver, and 
3. Silver is consumed while gold is essentially not. It's hard to create a squeeze in something that every ounce that has ever been mined still is in existence.

FMX wonders if the reclassifications are just the beginning's of the the big banks starting to get out of the way because someone bigger that the usual investor community with deep pockets and a will deeper than all the Bullion Banks combined has decided to de-dollarize their FX reserves.

Someone like say... China?

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The ride back up and the Silver lease scam

Well... I told you Silver was in for a volatile period and it's not disappointing us.

Yesterday I wrote that Silver's 'correction' will probably end by Thursday (at the latest) and the metal will start a rally back towards $50.

Yesterday Silver was at $45.30. 

Today the US Federal Reserve Chairman held an unprecedented press conference.  And in anticipation Silver started climbing.

When Bernanke spoke, he made it was clear that the Federal Reserve was signalling it is in no rush to scale back its extensive support for the U.S. economy. The Chairman said the run-up in commodity prices that has dented growth should be fleeting (???).

Meanwhile the Fed's policy-setting Federal Open Market Committee said in a statement that it intends to complete its $600 billion bond buying program in June as scheduled and that despite some headwinds, it believed that the economic recovery was proceeding at a moderate pace, with little risk an inflationary psychology would take hold (????).

In other words... "inflation? what inflation?"

The response to this fairy tale outlook sent Silver soaring back up $3.08.  As this is written, Silver sits at $48.38...

... wheeeeeee!!!! And the roller coaster starts it's climb upward again.

They will try and beat the price back down again, but we are probably going to see Silver go to between $50-$52 in the next couple of weeks.

Yesterday I referenced this excellent article over on Seeking Alpha.  It talked about a Silver storage scam that is an important part of the Fractional Reserve Silver system being practiced by the banking cartel as part of their Silver price suppression scheme.

The public is finally becoming aware of this storage scam as a result of a couple of important lawsuits.

The first involved Michigan resident Laurin Ramsey.

In 1984, Ramsey purchased ten 100 ounce pure silver bars from the Swiss bank UBS (or its Paine Webber subsidiary). Since that purchase, he had paid $25 per month for storage fees to UBS to keep the silver.

A few years ago, he tired of paying the storage fees and contacted the bank to arrange delivery.

Instead of delivery, Ramsey only got the runaround. When he finally asked to be given the serial numbers on the bars and the location of the vault where they were stored, he was told that the bars did not have serial numbers (which wasn't true!).

At one point, the bank said his only option was to sell the bars back to the bank for cash... he could not take delivery of his silver bars. But Mr Ramsey did not want to close out his position.

On February 23, 2011, the Ramsey Personal Trust, by Laurin D. Ramsey was the lead plaintiff in a suit filed in the Federal District of Southern New York against UBS Financial Services, Inc., et al. The charges are that UBS had never purchased, segregated, or stored the silver, then had illegally charged storage fees for the phantom silver.

The lawsuit can be found here.

Seeking Alpha detailed the significance of the suit:

• "According to the lawsuit, customers were charged storage fees every month, even though the bank was not actually storing anything. It never purchased any physical silver. Instead, the bank allegedly used customer cash for its own purposes. In effect, customers ended up buying a non-interest bearing silver bond. Such bonds, based on a promise of repayment in precious metals, were typically issued in the late 19th and early 20th century. Back then, they bore a nice interest rate, payable in gold or silver. Today’s version of the precious metal bond is unallocated storage, which takes money from investors but pays them nothing at all."

S.A notes that a very similar lawsuit was filed in 2007 against Morgan Stanley.

In that case, small investors were also claiming they had been defrauded into participating in unallocated metals storage. The bank defended itself by alleging, among other defenses, that it was simply following standard industry practices.

In other words, the amount of information given to customers, the unallocated nature of the scheme, as well as the charging of “storage fees” for imaginary metal were “standard industry practices”.

In light of what we now know, maybe they were telling the truth. Morgan Stanley did eventually settle for a multi-million dollar payout, but it continued to deny liability.

UBS has not yet answered the allegations put forward by Ramsey. We don’t know yet what their response may be. The law firm representing Ramsey is Schoengold & Sporn, P.C. The individual attorney handling the case is Samuel E. Sporn and Sporn was the attorney who won the $4.4 million judgment in 2007 against Morgan Stanley.

But it begs the question... what happened to the silver that was supposed to be in storage?  If it is "standard industry practice", what have they been doing with the silver that was 'supposedly' stored?

It is clear to any rational person that the leasing scam has been an important component of the fractional reserve silver system that the banking cartel has been employing for years.

The cartel has been taking that silver that many depositors believe is being stored on their behalf and has been using that silver elsewhere to deliver on paper shorts they have issued on the COMEX.

The key element here is that the whole system is starting to unravel.

The collapse of Lehman Bros, the 2008 financial crisis, and the massive money-printing under Quantitative Easing has triggered a rush into precious metals which is intensifying with each passing month.

Central Banks around the world are now net buyers of Gold and Silver, not net sellers.

Individual investors are starting to pour into Gold and Silver in unprecedented numbers.

And intense upward pressure is being placed on silver prices because physical silver is being purchased as never before and actual physical silver is becoming incredibly difficult to source. The fractional reserve silver system has sold out paper silver at a 100-1 ratio to physical silver.

Upward pressure is not stemming from trading on COMEX. In fact, deliveries at COMEX have been relatively small for several months. The process that is now ongoing is one that no performance bond committee can stop... an overwhelming demand for the delivery of the actual metal. COMEX could declare liquidation-only, as they did in 1980 to stop the Hunt Brothers, but the only result would be to catapult the demand for the price of physical silver even higher.

COMEX is now irrelevant except as a way for banks to bankrupt themselves if they continue to try to reduce the price of physical silver by manipulating futures prices and taking on more short paper positions to do it. They can crash the paper futures price as much as they wish. It won't stop buyers from demanding physical silver in the real market outside COMEX.

The price of silver for the past 40+ years were a result of a naive market, overwhelming short positions at the futures exchanges, manipulative trading techniques and a deceitful unallocated storage arrangement.

The current silver pricing surge may look like a typical short squeeze, but it is nothing of the kind. It represents a permanent change in market perceptions. That is not to say that silver prices cannot fall, but the pressure to buy physical silver will continue to mount.

When silver prices finally reach equilibrium, the bellwether level of $50 per ounce will be the floor, rather than the ceiling.

Tomorrow we will look at another evolving story of the COMEX suddenly losing over 20% of it's "registered" silver over the past week.

Was it actually there? Or is the short squeeze  and the demand for physical silver forcing the COMEX to admit that much of the 'supposed' silver they have in their vaults is nothing more than a paper entry and isn't actually there?

More tomorrow.

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The Silver shell game gets bigger

I was in the process of writing a post to answer some silver questions from the past few days when I came across this. I will try and answer those questions later.

If you have been following the silver story on the COMEX, you know that the short squeeze in silver is heating up and with 8 days left in the delivery month of March the situation is getting intense.

As of Monday there remained 896 contracts representing 4,480,000 oz of silver which were left to be serviced (delivered). This represents a full 50% of the March contracts which still have to be delivered.

Various analyst's have commented that never in silver COMEX history has an amount still standing for delivery been equal to the amount already served this late in the month.

With 8 days left, an average of 560,000 oz must be serviced on each and every trading day until the end of this month. To our analyst's it is quite obvious that the COMEX does not have the silver available to service the patiently waiting contract holders.

This past weekend, however, there has been a curious development that is setting off alarm bells.

JP Morgan Chase was just granted a silver vault licence on the COMEX. And the licence was granted lightening speed compared to other licence's.

The respected online site Seeking Alpha asks:

• Why was JPM awarded a vault license almost overnight, avoiding the lengthy vetting process others must undergo? Why did it happen in the middle of a major COMEX silver delivery month, during a massive worldwide silver short squeeze, at a time when physical silver is in severe shortage?

Alpha then connects the dots.

When silver is 'delivered' on these COMEX contracts, it is often a simple computer transaction. The vast amount of physical bars 'delivered' in a settlement never actually leave the warehouse. They are simply 'credited' to the new owner and left in the warehouse (with the appropriate storage fees charged). Taking actual delivery of thousands of ounces of physical silver and moving it to your own storage location can be a costly process.

In the past, JP Morgan had to 'send' silver to HSBC, Brinks, Scotia Mocatta and/or the Delaware Depository in order to "deliver" it on COMEX. JP Morgan would have this silver already on deposit there and title ownership would be transferred to the contract holders upon settlement. HSBC, Brinks, Scotia Mocatta and/or the Delaware Depository would then confirm this with the contract holder.

But overnight JP Morgan has been granted it's own vault licence.

As Alpha notes:

• If a short seller must deliver a commodity, and the commodity is not readily available, there is no better way to buy extra time than to be able to deliver into its own vault. Most of the metal will never leave the vault, and most delivered metal that will leave the vault won't leave right away. Indeed, paperwork tasks of transferring title can consume a few days. Thus, a late delivery may not be noticed if it is to the short seller's own vault if the vault operation staff chooses to remain silent.

In other words JP Morgan can claim they have the silver and it has been transferred to the new owner (when in fact there is no silver to be had) and the vault won't dispute this claim.

Therefore if JP Morgan doesn't have the necessary 4,480,000 oz of silver they have short sold by March 31st, they can 'deliver' fictitious silver and advise the contract holders their fictitious silver is 'waiting' for them in the JP Morgan vault.

Unless a customer demands immediate pickup and transportation of the physical silver, how does a customer know the silver is actually there? And even if pickup is demanded, paperwork and arrangements can delay the process of actual delivery up to a month.

Now that the third parties of HSBC, Brinks, Scotia Mocatta and/or the Delaware Depository have been eliminated, all customer's have is JP Morgan's guarantee/promise that the silver is there.

It's a shrewd, clever move. And it buys JP Morgan precious time to locate physical silver to deliver for the March contracts.

Seeking Alpha is already asking readers to pass on if anyone has any positive or negative experiences with the newly licensed J.P. Morgan vault.

Meanwhile JP Morgan has just tossed another ball in the air in it's ponzi juggling act.

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So what's happening over at the COMEX with Silver?

Thought we would take a moment and take a look at silver again today.

According to analyst Harvey Organ, there remain 923 notices (or contracts) to be filled for the March Delivery period. Each contract is for 5,000 oz's so this represents 4,615,000 oz's still waiting to be delivered.

We are now equally balanced between the number of oz's that have been delivered by the COMEX this month with the number of oz's waiting to be delivered.

And while the COMEX has until the end of the month to deliver this silver, observers note that there has NEVER been a month where we have reached the halfway point and there remains 50% of the outstanding silver undelivered.

This is your greatest bit of evidence that silver is in short supply.

COMEX inventories are divided into registered and eligible categories. It would be most useful to think of these two categories as dealer and investor inventories, respectively. Registered inventories are committed to be delivered to fulfill maturing contracts. Eligible inventories are often stored in COMEX bonded warehouses to allow the owner the option to make the metal available to fulfill COMEX contracts, but there is no obligation for the owner to make the commodity available for the purpose.

The inventories that do exist may also be subject to the claims of other creditors.

Clearly the COMEX vaults (on the dealer side), which supposedly have 53 million oz's in reserve, are probably empty (the silver having been leased out to other entities in the giant silver ponzi and not available at this time).

Oh my!

So what does that mean for the 923 contracts which are currently standing for delivery?

Well... there's an interesting thread playing out on a yahoo chatboard right now.

The poster claims that he has bought 3 of those COMEX contracts (150,000 oz of silver) and wanting physical delivery. He states the COMEX has advised he may not be getting his silver delivery, but they have offered him shares of the exchange traded fund SLV plus a premium of 70%.

The key element of this story, of course, is that the COMEX is supposed to be THE key pricing mechanism for the price discovery of the true value of silver.

If this, and similar stories, are true than the COMEX is now an extremely broken pricing mechanism since it cannot gauge real supply and demand. There is a demand for silver, the silver isn't available, so the price should be moving higher in order to make the silver available to those who want it NOW.

More importantly, if there's a shortage of a specific commodity you can't have a certain party (hello JP Morgan Chase) naked shorting in order to manipulate the price down. You can short a contract if you have a supply of the commodity to back it up, it's illegal to short if you can't.

You will hear the argument that COMEX commodity contracts are mostly traded by investors who never intend to take physical delivery. Instead, they normally exit their contract before maturity or replace it with another contract with a maturity further in the future. As a result of this practice, the available inventories held to make contract deliveries only cover a small fraction of outstanding contracts.

The fact that so many want physical delivery right now, the COMEX defenders will claim, is an anomaly.

But as demand for silver increases, the reality is that this situation is not an anomaly.

And the reality is that JP Morgan and HSBC are probably naked shorting huge amounts of silver that they can't even supply to the market.

If the short squeeze continues, the dam will have to burst and the spot price of silver will have to rise dramatically to reflect the current supply/demand situation.

We continue to watch the COMEX situation with keen interest.

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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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So what's been happening on the COMEX?

As you will recall from this post on March 1, there were 4,250 contracts representing 21,250,000 oz of Silver which are standing for physical delivery this week in the delivery month of March.

Furthermore, early evidence from the COMEX seemed to indicate that the COMEX was severly stressed to provide physical Silver for these contracts.

According to analyst Harvey Organ, since then the Open Interest standing for delivery first fell from 4,250 contracts to 2,833 (1,417 contracts settled) but there were only deliveries on 250 contracts. This indicates the rest settled for cash.

(Which as you will recall was the whole objective in the rumour set out in Part 5: The Short Squeeze).

Organ reports that on the second day of settlement, the Open Interest fall from 2,833 contracts to 2,251. But there were only 42 delivery notices, meaning 540 contracts appear to have settled for cash.

(Remember each contract represents 5,000 ozs of Silver).

Yesterday Organ advises that "a miniscule 9 contracts (45000 oz) were served today. This is the third straight day that the deliveries have been tiny which indicate that the vaults are empty of silver metal. 2,242 contractsor 11,210,000 oz remain to be served upon. We have lost approximately 8.4 million oz to cash settlements these past two days."

And the rumour mill is cranking up about those cash settlements.

The same group that purported to lay out the plan for the short squeeze that we covered in Part 5 of our Silver series have surfaced on a couple of chatboards stating that they are amongst the group that have been paid out.

In announcing this development, there are some very interesting claims made. We have no way of validating this and as such it MUST be treated as rumour. However, here is a screenshot of what was posted (click on image to enlarge):

The group is claiming they were paid an 80% premium because the COMEX simply couldn't deliver on the contracts that are outstanding. An 80% premium means that they were paid at an equivilant of over $50 an ounce to go away.

There is no way to confirm if this is true. However, as Harvey Organ notes, for three days the number of deliveries of physical silver has been very small. This is highly unusual and indicates that the COMEX doesn't have the physical silver to deliver to those standing for physical.

In this enviroment, a premium of $50/oz in fiat cash is not unreasonable. And it is you clearest indication yet that silver at $34/oz is not only cheap, but highly undervalued.

More as this story plays out.

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Is the COMEX under stress for March Delivery?

In Part 5 of our series on Silver (The Short Squeeze), I talked about what happened last September for the delivery contracts of that month.

In the period from September 17th, 2010 to September 29th, 2010, Comex customers leased – in 5 out of 9 working days - a total of 3.1 million ounces of physical silver to Comex dealers.

In this same time period, Comex dealers delivered 4.1 million ounces of physical silver to owners of September, 2010 silver futures contracts.

This means that Comex dealers had only 1 million ounces of their own physical silver, even though at the same time, they reported to have around 53 million ounces in their warehouse.

Why would you borrow 3.1 million oz and pay a leasing fee if you own 53 million oz of silver yourself?

The rational man would suggest that somehow that 53 million oz was either spoken for or did not exist.

Fastforward to this week. Settlement of the futures contracts for March has begun. When the dust has finally settled, the open interest on silver turned out to be 4,250 contracts a fall from 14,259 (a drop of 10,009 contracts).

But don't think the COMEX is out of the woods yet. 4,250 contracts represents 21,250,000 oz which are standing for delivery.

Harvey Organ, a respected silver/gold analyst had this to say about the COMEX last night:

• "The comex folk announced a very tiny 252 notices or 1,260,000 oz of silver (have been settled after day 1 of settlement week). I would like all of you to go back to Saturday's commentary where I saw this strange transaction in inventory movement at the HSBC warehouse where 1.26 million oz left a customer at HSBC and entered the HSBC dealer section of the warehouse. The math at the bottom of the screen did not match the figures which many of you figured out. Normally we see a transaction of this type as an adjustment where we see a negative 1.26 million oz to the customer and an equally positive entry to the dealer. Why did they do it in the receiving category of HSBC and not an adjusting entry? Is there an imperfection in the inventory? To have 252 notices sent down on the first day out of 4250 and all of this inventory coming from a customer must surely scare bankers globally that something is terribly wrong in the silver comex."

Organ went on to note that in the official transactions for silver, there were no deposits of any kind into the dealer nor the customer. This is very strange in a delivery month for silver. On the customer side of the ledger, there was a withdrawal of 378,386 oz of silver.

Organ speculates that the situation at the silver comex is quite dire as they must resort to withdrawals from customer inventory to settle futures contracts on the first day of settlement week. Quoting Organ:

• "Ladies and Gentlemen: the silver comex has no silver in the dealer category to settle upon our patient longs."

Silver has hit fresh 30 year highs the past two days. Is silver shooting up in price as a desperate scramble ensues to procure physical?

We'll watch events closely.

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Royal Canadian Mint comments on the demand for Silver

Evening Gang. Part 4 is not ready tonight, but what a wild day for those of us who do follow silver. If you click on the image above, it will enlarge for you showing you how silver was raided today.

Why the massive drop?

Is the silver supply issue suddenly all better?

Did we suddenly discover a couple billion ounces laying around somewhere?

Did the U.S. suddenly balance its budget?

Are all of the U.S. states suddenly solvent?

Nope... it was a raid, pure and simple. Designed to drive away the massive open interest of buyers who are still standing for delivery of physical silver in March.

Today was options expiry for Silver and the Cabal launched a massive attack to drive the price down. As you can see in the graph, we went from over $33.20 down to $31.70, a huge drop of $1.50 in a very short period of time.

In any other era, this would have sent Silver cascading lower still and kept it down for months afterward. It is truly a testament to the paradigm shift we are seeing in precious metals that not only did Silver not cascade downward in price, but that it actually rebounded and, as this is written, sits at $32.52.

The Comex is facing a dilemma. And it all has to do with sourcing physical silver (more on this in Part 4 of our series).

How difficult is it to find large amounts of silver?

King World News had a great interview with David Madge, director of bullion sales at the Royal Canadian Mint.

When asked if the RCM is having trouble acquiring silver Madge responded,

• “Demand right now for silver is through the roof and it shows no signs of slowing at this point. Sourcing silver is becoming very difficult. We are competing with a great many players when it comes to purchasing silver and many of these players are bidding the price higher.”

Madge goes on to say,

• “Our advantage is that we have had long-term relationships with our suppliers and that has helped us in this situation. We have been able to leverage off of those relationships to get supply, but it still remains a big challenge sourcing material. We’re looking at ways of mitigating our risk regarding supply of silver.
  
  We are anticipating it to become even more difficult to secure supplies in the future. This is based on what we are seeing firsthand and what our suppliers are telling us. We work closely with these banks to secure silver and they tell us there is a lot of competition.”

When asked what this means for the price of silver and how long this condition is expected to persist Madge stated,

• “I think you are going to see the premiums go up in order to secure silver. At some point some players will be priced out of the market. I don’t think this is a short-term situation, I think there are a lot of issues going forward and this may be the new norm.”

So here you have the Royal Canadian Mint telling us that they expect it to become even more difficult in the future to secure supplies of silver. As King World notes, this is an extremely important testimonial regarding how tight the silver market is because the information is coming directly from the Royal Canadian Mint itself.

Although I haven't posted Part 4 (The Short Squeeze) yet, we are closing in on the cut off for March delivery for physical silver from the COMEX and open interest for the delivery of physical silver remains massively high.

As mentioned yesterday COMEX silver inventories are at 4 year lows. Total dealer inventory is now 42.16 million ounces and total customer inventory is now at 60.68 million ounces, giving a combined total of 102.847 million ounces.

Today's open interest stands at 28,000 contracts. To give you a sense of how massive that is, 28,000 contracts = 140,000,000 oz's still standing for delivery.

And if the Royal Canadian Mint is having difficulty sourcing additional silver, you know the COMEX is in a desperate position.

Tomorrow should be an interesting day indeed on the silver markets.

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Silver, the Opportunity of the Decade - Part 3: The Comex Silver Cartel

For those coming to the blog later in the day, this is the third post on silver today. Please check out the two earlier posts below this one.

This is the 3rd part of a series on Silver, The Opportunity of the Decade.

Read Part 1: Shrinking Supply and Rising Demand

Read Part 2: The Comex, what is it?

In Part 2 the COMEX was explained. Today we are going to talk about the cartel that manipulates the COMEX.

Ted Butler is a trader who has studied the COMEX and has produced some revealing details about the Exchange. This is a portion of an article he has written. You can read more articles on silver by Ted Butler here.

Most of us understand what a cartel is, namely, a single entity or small group, acting in consort, for the designed purpose of imposing a price on a commodity different than what the free market may dictate.

Prominent examples would include DeBeers in diamonds, and OPEC in oil.

I'm not going to debate the legality or nuances of cartels. The point is they do exist and unrecognized cartels do the most harm, precisely because few are aware of their existence.

One such cartel exists on the Commodity Exchange, Inc. (COMEX) silver market. The reason most people don't see it, is because the COMEX Silver Cartel is a short side cartel, unlike the long-side cartels that we are all familiar with.

While DeBeers and OPEC work to lift the price of their products, the COMEX Silver Cartel works to lower the price of silver. Unfortunately, because of this general unawareness, the COMEX Cartel has been wildly successful in depressing the price of silver.

The basic definition of how a cartel works is having sufficient control, or dominance of a market, so as to be able to dictate the price of that market.

In crude oil, OPEC controls roughly a third of total world production (25 million barrels per day versus 75 million bpd world production), but its dominance determines the price of all production. Sometimes, the oil price is low, and sometimes, like now, the price is high. But the price is always a function of how the cartel is behaving. OPEC's dominance is clearly visible.

In silver, if you look in the right place, you will just as clearly see the COMEX Silver Cartel's dominance.

The right place to look for the existence of the silver cartel is in the Commodity Futures Trading Commission's weekly Commitments of Traders report, long form version.

When you look at these reports you will see that 4 or less large traders hold a net short position equal to 32,000 contracts, or the equivalent of 160 million troy ounces of silver.

The gradual drain of COMEX silver inventories seen in recent months continues and COMEX silver inventories are at 4 year lows. Total dealer inventory is now 42.16 million ounces and total customer inventory is now at 60.68 million ounces, giving a combined total of 102.847 million ounces.

Yet... as we just said, there is a net short position equal to 160 million troy ounces of silver, more than exists in the entire COMEX.

This is the largest naked short position that the world has ever seen in commodities.

The 160 million ounce net short position by the 4 or less traders who make up the COMEX Silver Cartel is slightly misleading. First off, 4 or less traders is an intentionally ambiguous term, ostensibly designed to shield the identity and market position of specific traders, or a specific trader. 4 or less, could mean 1 or 2. And in a recent investigation by the CFTC, those 2 traders were identified as JP Morgan and HSBC.

Put that concentrated 160 million ounce short position into context.

It is an amount greater than the annual combined production of the two largest producing countries, Mexico and Peru. It equals 30% of total annual world mine production. It is 37% of the entire COMEX futures position, the world's largest precious metals exchange. It is greater than all the visible silver inventory in the world.

JP Morgan and HSBC have a more dominant position in COMEX silver, as a percent of the market, than OPEC has in oil.

But while OPEC produces a real product, the COMEX Silver Cartel appears to only deal in paper.

But silver paper sales are sales, even if they are unbacked short sales, in terms of price impact.

But shorts are different, and someday the day of reckoning will arrive. Someday, the silver cartel will have to put up, or shut up. That day will be like no other. In this sense, the silver cartel has done, and will do, more harm to the rest of the world, than any cartel that has ever existed. That's because it has so distorted the silver market, that its aftershocks will be felt for decades.

The shocking thing about the uneconomically large and concentrated position of the COMEX Silver Cartel, is that its very existence and behavior is expressly forbidden by the Commodity Exchange Act (CEA). The position limit regulations, and the clear intent of those regulations, that the COMEX Silver Cartel are violating, are straight-forward. The CEA never intended for speculators to control a bigger position than the largest producers and consumers of a commodity. In fact, the larger real producers and consumers of a regulated commodity (the CEA specifies agricultural products and metals as regulated commodities) must apply for an exemption from position limits, in order to control a larger amount. Any exemption from the (speculative) position limits granted to a real producer or user of a commodity is capped at what amount that producer or user, actually makes or consumes, over a 12 month period of time. (As an aside, this is the aspect of commodity law that is violated by 'hedging' more than one years production).

Since JP Morgan and HSBC control a position greater than what entire countries produce in a year (forget individual companies), and the cartel's position is much greater than the total visible world inventory of silver, it is clear they are violating the intent and clear specifics of the CEA.

In other posts the CFTC investigations have been covered, so we won't dwell on that part today.

What is of interest is that world events have aligned to create a massive demand for both Gold and Silver.

And the conditions now exist that there might, one day, not be enough physical silver available for delivery on the COMEX.

Talk of a default on the COMEX is premature but the scale of current investment demand and industrial demand, especially from China, is such that it is important to monitor COMEX warehouse stocks.

The Hunt Brothers were one of a few dozen billionaires in the world in 1979 when they attempted to corner the market. Today there are thousands of billionaires in the world, any number of whom could again corner the silver market. Also, today unlike in the 1970s, there are sovereign wealth funds and hundreds of hedge funds with access to billions in capital.

The possibility of an attempted cornering of the silver market through buying and taking delivery of physical bullion remains real and would likely lead to a massive short squeeze which could see silver surge as it did in the 1970s.

In fact, it has been suggested that such a massive short squeeze is currently being executed which is the reason behind the intense volatility in the silver markets and over 106% increase in the price of silver since August 2010.

Part 4 will look at that short squeeze.

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Silver, the Opportunity of the Decade - Part 2: The Comex, what is it?

Last December, when President Obama announced a tentative deal with Congressional Republicans to extend the Bush-era tax cuts at all income levels for two years, you could clearly see the writing on the wall.

Extending those tax cuts will cost $900 Billion - equal to QE2. In essence we had QE3.

And as the political realities of the mounting debt issues of the US Federal Goverment met head on with the burgeoning debts of the individual US States and cities, there is no practical way out of the debt problem – none.

QE4, 5 and 6 are all but assured.

And it's not just America.

China has been printing money too...

The UK has been printing money...

Japan has been printing money...

India has been printing money...

And so has the EU...

As I wrote last May, the story of the coming decade is one of soverign debt and how nation's respond to it.

I wrote then that this is already creating a mini-panic and rush on precious metals, a trend which will only intensify. Almost a year later, that demand has most definately intensified.

For large scale buyers of precious metals, the primary source to acquire Silver is via the COMEX.

So before talking about what is happening in Silver, we must first understand the COMEX and how it works.

What is the Comex?

There used to be two exchanges in New York. The New York Mercantile Exchange and the Commodity Exchange, Inc (COMEX). In 2006 these two exchanged merged and became one. It is now the New York Mercantile Exchange (NYMEX) but is divided into two parts, the NYMEX Division upon which is traded such commodities as oil, gas, palladium and platinum and so forth, and the COMEX Division on which gold, silver copper and aluminum is traded. On this exchange are traded 'Future Contracts' of gold and silver.

Futures Trading

Futures trading is the basic action of entering into a legal contractual agreement with another (known or usually not known) individual to exchange money or assets of some value at some time in the future and with the pre-determined price (called a futures price) based on the underlying asset. Such an asset could be stock, an interest rate even or, in this case gold or silver.

So traders agree to exchange gold/silver (or equivalent cash flows) at a future date.

When you enter into these contracts you are betting that the value or price of that asset or stock or gold is going to be at a certain value at a predetermined time in the future. At that time, when the contact is completed and 'settlement date' arrives, you or the other party cough up with the difference between what was originally paid and what the settlement price is.

One of the perceived advantages of futures trading is that you do not have to put up all the money needed for the contract but usually only a percentage. Usually around 10%. This means that people can trade with a smaller amount. It is rather like going to the races and placing a bet for 1000 dollars but only putting 100 dollars down. If you lose you have to come up with the 1000 dollars of course but if you win you have only needed 100 dollars to play the game. There are some other factors, of course, but that's the primary gist.

Both parties of a futures contract must fulfill the contract on the settlement date. The seller then delivers the commodity to the buyer, or, more often than not, it is a cash-settled future, and cash is transferred from the futures trader who sustained a loss to the one who made a profit.

Incidentally, you can bet both ways of course, that the price will go up or down.

To take actual phyical delivery of the silver in a contract, you will need to wait until the term of the contract expires and you can take delivery. This is called taking a long term. Various entities, such as banks for example, take a short term. They have no intention of taking delivery and so, with the ten percent leverage mentioned earlier, they can take enormous amounts of contracts and sell them short, keeping the price down and, in effect, manipulating the gold and silver price.

But if you intend to take possession you will have to ante up the whole amount required to complete that contract and you would have to wait until the contract expires before you can organise and take delivery.

For example, if a contract was bought today, and the price on the gold contract was between $695 - $735 per ounce, the full value of the contract you bought would be $69,500 - $73,500 per 100-troy ounce. Likewise if the price on the silver contract was between $9.74 - $9.16 per ounce, then it would be $48,700 - $45,800 per 5,000 troy-ounce contract.

These figures would not include any commission charges incurred going through a broker of course and are just an example to illustrate how it works.

Of course, if you did not want to take possession of the metal you could simply enter a position without posting the full contract value, but instead post around 10 percent (The actual percentage may vary depending on your broker and other factors). This is the "margin" which is posted "in good faith". Price can go through some dramatic changes in the any futures market and if the price of gold drops significantly you might be called upon to add funds to your account to maintain your position. (called a maintenance margin) or you might find your position is liquidated. There is usually a risk maintenance level and if your account falls below that level then you would need to top up your account with the requisite funds.

Now, when the time comes to take delivery you will get a Notice of Delivery and the full amount will be debited from your account. So you would be required to have the full contract value deposited in your account with your broker at the price the contract was originally purchased. There would be a few days of processing at the end of the contract but then you would be able to take possession, usually a couple of weeks later.

You can do this in three ways.

You will receive a receipt, which in effect is like a stock certificate, and you could store that. The gold would be in storage in a vault and you would be up for some storage charges, This premium, compared to the gold price, will be minuscule. The gold is kept in storage for you and you can take physical delivery anytime you want of course. This is the first method.

The second is that you could have the gold bullion shipped to a warehouse. You can be put in touch with the vault that contains your gold (generally in or around New York, US) and have brinks or an Armored car transfer your gold to a warehouse or bank of your choosing. There would be more costs involved with this but, again, the charges would not be very much compared to the value of the gold bullion.

Of course you can avoid doing any of this by simply depositing the full value of the contract when you establish the position. Note, you can decide not to take delivery of course at any time and close out your metals position and take a profit or loss depending on the price movement.

However, IF you want to take it out of the Comex warehouse and have it stored elsewhere then it would be your responsibility to organise this. This would be typically done through a security shipping service and arranged storage at a bank vault.

If your intent is to actually receive the physical metal, it is held in storage at specific "delivery points." It is your responsibility to make the arrangements to do this. There are fees associated with removal from the storage facility. In addition, if the metal is taken out of storage, it cannot be sold for delivery on the exchange without being re-assayed.

Tomorrow we'll talk about the banking cabal manipulation of the Comex, something you will see on a massive scale in overnight trading of silver tonight in a desperate attempt to bring the price of silver down.

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