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The Last Great Silver Buy

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January 12, 2018 - 2:44pm

In the annals of silver in the modern age, there have been two well-known instances of very large investor accumulations of the metal. First came the purchase by the Hunt Brothers and their associates in early 1980, followed by the purchase by Warren Buffett’s Berkshire Hathaway, 17 years later. The Hunts were said to control around 100 million ounces of actual metal (plus another 100 million ounces in long paper futures contracts), while Berkshire held as many as 129 million ounces.

 

Now there is compelling evidence of a third great investment accumulation of physical silver by none other than JPMorgan, one of the most powerful and connected banks in the world. This accumulation can be dated from the price peak of April 2011, after silver began what is now a near seven-year price decline. From zero in April 2011, the amount of silver in the JPMorgan COMEX warehouse has increased to 120 million ounces. Just about every ounce moved into the JPMorgan COMEX warehouse over the past 7 years has come from futures deliveries stopped (taken) by JPM in its own name. JPMorgan took delivery of 14 million ounces in December and so far, 13 million ounces have remained in the warehouses from which the metal was delivered. So this means that JPMorgan now holds more than 133 million ounces of silver in COMEX warehouses, or more than was held by the Hunt Bros or by Berkshire Hathaway at their peaks. There was a lot more silver in the world in 1980 and 1998 than there is today, meaning that JPMorgan’s accumulation is much more of an accomplishment than previous silver acquisitions.

 

JPMorgan’s COMEX warehouse silver holdings are only the tip of the iceberg. Beneath the surface, the true extent of JPMorgan’s physical silver accumulation is nothing short of mind-boggling. All told, including the verifiable 133 million ounces held in its own and other COMEX warehouses, JPMorgan holds at least 675 million ounces of actual silver. Simply put, JPMorgan has acquired six times as much metal as bought by the Hunts or Berkshire Hathaway. How is it possible that JPMorgan, could acquire such a massive quantity of physical silver, with no general awareness that it was doing so? More importantly, how did they do it while silver prices steadily declined over the entire time of JPM’s accumulation?

 

Common sense would dictate that such a large acquisition as JPM’s 675 million ounces (nearly 45% of the 1.5 billion ounces of silver bullion in the form of industry standard 1,000 ounces bars in the world), could not be bought by any entity without driving prices sharply higher. So how could JPMorgan do so without it being noticed and without driving prices sharply higher? The answer is that in addition to being the biggest physical silver accumulator in history, JPMorgan has simultaneously been the largest short seller in COMEX silver futures for the entire time since it acquired Bear Stearns in early 2008. JPMorgan has pulled off something that couldn’t possibly be replicated not just in silver but in any other world commodity. Never again will any one entity be able to accumulate 45% of the world’s supply of a commodity. JPMorgan’s accumulation is more bullish for silver than any other single consideration by a factor of 1,000.

 

How legitimate is it that a large financial entity could sell short massive quantities of paper derivatives contracts which result in lower prices, and then use those lower prices to accumulate silver on the cheap? It couldn’t possibly be legitimate and that makes JPMorgan a market crook and manipulator. It also makes the federal regulator, the CFTC, and the self-regulating CME Group, incompetent, corrupt, or both. This takes a special kind of market manipulator, one most likely operating under some type of agreement with the regulators.

 

As I have explained in past articles, 150 million ounces of silver was acquired by JPMorgan through buying 100 million Silver Eagles from the U.S. Mint, plus another 50 million Silver Maple Leafs from the Royal Canadian Mint. All these coins were melted into industry standard 1,000 ounce bars since as there’s no way anyone to unload 150 million Silver Eagles and Maple Leafs. In 2013 record sales of these silver coins conflicted strongly with reports from retail dealers of weak demand. By process of elimination, if it wasn’t the guy on the street buying all these coins, it had to be someone big. Based upon a variety of other supporting evidence that JPMorgan was the absolute king of the silver market, the most plausible explanation was that JPMorgan was Mr. Big when it came to buying Eagles and Maple Leafs. JPMorgan’s cessation in buying these coins a year or so ago is the only explanation for why sales then fell off a cliff. JPM controlled the price at which the mints sold and JPMorgan bought. It was a particularly clever and deceitful means by which JPM acquired 150 million ounces of silver at give-away prices.

 

At the exact time that silver topped out in April of 2011, JPMorgan opened its COMEX silver warehouse and began its epic accumulation of silver. Another almost impossible to explain phenomenon started then and continues to this day – an unusually large and persistent physical movement of silver brought into and taken out from the COMEX silver warehouses. Over the past near 7 years, there has been an average weekly movement of around 4.5 million ounces of physical silver turning over in the COMEX silver warehouses, far higher than ever before. In total, some 1.4 billion ounces of physical silver were moved in and out of the COMEX warehouses. This physical movement of silver in the COMEX warehouses is highly unique to silver, as no other commodity has seen any unusual turnover in exchange-approved warehouse inventories – just COMEX silver. I believe this unusual turnover was created by JPMorgan gobbling up all available silver in industry standard 1,000 ounce bars. JPM has been able to “skim off” 150 to 200 million ounces, which when combined with the 150 million ounces that JPM accumulated in mint-issued coins, brings to 300 to 350 million ounces of the 550 million ounces JPMorgan holds outside its COMEX warehouse holdings.

 

However, the main means by which JPMorgan has accumulated its massive hoard of physical silver is by continuously converting shares of the big silver ETF, SLV, into metal.  All told, JPMorgan has acquired 250 to 300 million ounces of physical silver by this means. By converting shares of SLV into physical silver bullion, a large buyer can convert shares of SLV, (ownership of shares must be publicly-reported at certain SEC-mandated thresholds), into physical metal with no disclosure reporting requirements. It is the perfect means for someone big to acquire significant quantities of physical silver on the sly and no entity in the world is more qualified to do this than JPMorgan. That’s because JPMorgan is not only the largest Authorized Participant (market maker) in SLV, it is also the sole official custodian, which means it is in charge of all physical metal that moves in and out of the trust. Any time you see what looks like a highly counterintuitive redemption of metal from the SLV on rising prices, which has happened quite frequently over the past 7 years, dollars to donuts it is the handiwork of JPMorgan converting shares to metal.

 

With the publically disclosed 133 million ounces JPM holds in the COMEX warehouses, JPM’s total holdings are 675 million ounces at a minimum. For those who would contend that JPMorgan would have to report such holdings publicly, I say poppycock – JPMorgan reports what it wants to report and its vast army of accountants, lawyers and lobbyists are the main parties which determine what has to be reported publicly. Truth be told, JPMorgan could own a fleet of aircraft carriers and keep them off its public reporting books, if it so desired. Who would stop them? The CFTC? That JPMorgan has accumulated at least 675 million ounces of silver appears clear to me. More to the point is what JPMorgan intends to do with its epic physical silver holdings. The bank has maintained its death-grip on lower silver prices for so long it feels like it will do so forever.

 

However, I remain convinced that JPMorgan has the same intent as did the two previous great physical accumulators of investment silver, the Hunt Bros. and Warren Buffet. That intent is to sell at as large a profit as possible. No one buys any investment asset with the intention of losing money, least of all JPMorgan. They didn’t spend the last seven years accumulating physical silver to sell that silver at anything but the highest price possible. I can’t tell you when JPM will let the price of silver fly, but I am certain that that day is coming. And considering the means and deception with which it has accumulated the physical silver it holds, watching JPMorgan distribute its holdings at the highest prices it can attain will be one for the history books. That’s what these guys do for a living.

 

Given the clear evidence of the historic and epic accumulation by JPMorgan of physical silver in amounts so massive it’s near impossible to rule out an upside price surprise at any moment. That certainly includes a possible double cross by JPMorgan of its fellow big silver shorts. An email exchange with a subscriber this week prompted me to think back to the time when JPMorgan acquired Bear Stearns nearly ten years ago. Looking back over what has transpired since then, it’s now very easy for me to imagine JPMorgan playing a previously undisclosed role in Bear’s demise at the time. Who would put it past JPM to have exploited Bear Stearns’ vulnerability as the largest COMEX silver and gold short, at the time by helping to goose prices higher so that it could acquire Bear on the cheap and usurp the role of Mr. Big in matters silver and gold? Not me.

 

Ted Butler

January 12, 2018

 

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About Theodore Butler / Commentary Author

After publishing unique precious metals commentary on the Internet since 1996, I have decided to offer a subscription service. The main reason for the change is that I felt somewhat restricted by my weekly format.

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