Tuesday, March 22, 2011

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.


Email: village_whisperer@live.ca

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  1. JPM is the custodian of SLV. If they have this vault license, then maybe they move SLV's silver into their vault and use it to deliver on these contracts.

  2. From the SLV prospectus:

    "Silver owned by the trust will be held by the custodian in England, and other locations that may be authorized in the future. The agreement between the trust and the custodian is governed by English law."

  3. SLV will be the subject of another post and I will expand on this another time. But those who chart the 'alleged' movements of silver into SLV marvel at how they can find their silver.

    Funds like Sprott scramble for over 10 weeks to acquire just 15 million ounces of physical silver, but SLV adds millions of ounces of paper silver overnight on a regular basis.

    How can they locate all the physical silver when everyone else cannot? The allegation is that a good portion of SLV's silver is simply paper silver and that SLV does not actually have all the physical silver that they claim they have.

    The fact of the matter is... if SLV actually has that silver, JPM can simply make the transfer into the other registered vaults.

    However, if SLV doesn't have the physical silver to spare, they can't transfer this fake paper silver into these vaults for delivery.

    They can only transfer fake paper silver into a newly created vault that they own.

    We shall see in the coming days, but I suspect all the silver that 'appears' in the JPM 'vault' will be transfers from SLV.

    And the JPM 'vault' was created because the 'silver' they intend to transfer is not phyiscal silver, just paper (ie. non-existant) silver.

  4. Needless to say (and I will be doing a detailed post on this in the future), I don't recommend have anything invested in SLV. If you are looking for a silver fund to invest in, I would recommend Sprotts PSLV.

  5. King World News promotes PSLV regularly... and recommends the Canadian funds in general. Got that figured out...

    Sooo ah..... got any hints for some ten (or greater) bagger miners?