Silver and the massive JP Morgan short position

Faithful readers who follow this blog know that we extol the virtues and opportunities of Silver. 

The metal has been call 'The Opportunity of the Decade' by the likes of Eric Sprott of Sprott Asset Management.

But at the same time many of you have found Silver to be extraordinarily frustrating.

The precious metals are highly manipulated by the banking cartel's who are in line with the US Federal Reserve policy of market intervention to support the US Dollar.

And when it comes to Silver, the banking cartel is almost singlehandedly represented by JP Morgan which holds the largest short position in any commodity in the history of commodities trading.

In 2010, as summer wound down, we were very excited about the prospects for Silver.  It appeared conditions were lining up for a giant short squeeze which would force short covering by JP Morgan. The end result would be a significant increase in the price as this squeeze occurred.

Here is how the Silver spot price played out from August 2010 to April 2011.

In August 2010, Silver was sitting at just over $18 per ounce and jumped up to $19.00 (click on all images to enlarge).

During September 2010 we saw the spot price soar from $19.50 to $22.00.

In October 2010, Silver went from $22.00 to an intra month high of over $24.00.

In November 2010, Silver had a low of $24.00 and hit highs of almost $29.00.

December 2010 saw Silver on a roller coaster ride from $28.00 to over $30.60.

In January 2011, Silver got beaten down from $31.00 to $27.90.

Silver rebounded with a vengeance in February 2011 and went from $28.00 to just under $34.00.

In March 2011, Silver went from $34.00 to $38.00.

Then, in April 2011, Silver soared from $38.00 to over $49.00 per ounce.

Since then Silver has been beaten down and hovers in the $40.00 range.

You don't see much coverage of this short squeeze in the press. Most mainstream pundits and reporters have assumed that it was speculative buying that caused Silver's huge rise from $18.00 to $49.75.

There is no doubt that a lot of speculative money was starting to enter the fray towards the end of the winter run.

However, in futures markets, huge moves like we say from August 2010 - April 2011 are often the result of short squeezes.

And have no doubt, this is exactly what happened in Silver.

sentimentrader.com is a great resource and produced the following chart. It is produced from data compiled from the Commitment of Traders Report.  The chart shows both the Silver open interest and the speculative long position had been trending down prior to August 2010 and outlines for us exactly why Silver spiked in price.

Both Silver's open interest and the speculative long position continued to decline during the massive price move from $18.00 - $49.75. 

When open interest falls but price rises, its a short squeeze.

The same thing happened with Cotton just a few months earlier and the Commitment of Traders Report tells us that the commercial traders (which includes JP Morgan) were covering their shorts massively.

How much did they cover?

Back in August 2010 the size of that naked short position was 25,412 contracts.

Remember, each contract representing 5,000 ounces of Silver. That means JP Morgan held paper promises they had sold for over 127 million ounces of Silver (127,060,000).

And during the short squeeze JP Morgan likely covered 24 million ounces of their naked short silver position at a massive loss.

This is why Silver rose so dramatically in value.

It wasn't because Silver was in a bubble. It wasn't because of irrational speculation by average investors. It was JP Morgan covering their naked short silver position at a massive loss.

That's why this blog was so excited and focused on the short squeeze in Silver that analysts were expecting in the fall of 2010.

So what's happened since then?

Well... in May we saw the famous 'take-down' of Silverr.  Five margin hikes on traders in 8 days forced massive liquidation by investors trading on credit.  This was combined with massive short selling once again by JP Morgan.

Silver plunged from $49.75 to to $33.00 then recovered to hover around the $40.00 mark.

The September CFTC Bank Participation report indicates that four large US banks increased their silver shorts by 809 contracts in August from 23,775 to 24,584.

This is an increase of 4.05 Million ounces to the manipulative short position in silver in a single month. More importantly the total naked short position is up to 24,584 contracts.

Grasp what has happened here.

JP Morgan has been rebuilding their silver short position almost entirely back to the 25,412 contract position held prior to the massive short squeeze in August 2010. 

Worldwide demand for Silver and Gold during the latest phase of the Sovereign debt crisis is going berserk. Rather dampen demand and drive investors away from the metal because it is too volatile, buyers continue to accumulate Silver.

The banking cartel is desperately flooding the paper market with paper promises of Silver and Gold in a frantic attempt to keep a lid on the prices of both Silver and Gold.

And as panic slowly grips Europe in the unfolding debt quagmire, demand is increasing even more.

Another short squeeze is looming on the horizon... with a corresponding huge jump in the price of Silver.

Are you ready to take advantage of it?

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Email: village_whisperer@live.ca
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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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Email: village_whisperer@live.ca
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Please read disclaimer at bottom of blog.