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Jesse: Is the Price of World Silver the Result of Legitimate Market Discovery?

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December 15, 2009 – Comments (8)

This is a great article by Jesse of Jesse's Café Américain.

Here is an excerpt:

"...one US bank, JPMorgan, now holds 200 million ounces net short in COMEX silver futures, fully 40% of the entire net short position on the COMEX (minus spreads). As I have previously written, JPMorgan accounted for 100% of all new short selling in COMEX silver futures for September and October, some 50 million additional ounces. As extreme as JPMorgan’s position is, there is a total true net short position of 500 million ounces (100,000 contracts) in COMEX silver futures. Try to put that 500 million ounce short position in perspective. It equals 75% of world annual mine production, much higher than seen in any other commodity.

    This makes claims that the COMEX short position represents a legitimate hedge of mine production a lie. The total short position represents almost 100% of the total visible and recorded silver bullion in the world, and 50% of the total one billion ounces thought to exist."



One cannot tell what is truth here easily, because of the still much too opaque nature of the US markets. But I do have a bias here, and I must disclose it up front. I have little confidence in the ability of the US regulators to do their jobs competently, and now approach anything that is said by the Obama administration regarding the financial markets with great skepticism.

In a fair market with transparent and symmetric distribution of key price information the identity of any holders of positions of over 5% of the market would be made known, so that people might understand the character of the market.

Further, any justification for outsized positions and there 'backing' would also be made known publicly, and not just to a few insiders or regulators who expect to be trusted when past history shows that US regulators cannot be trusted to manage their markets reliably.

If this information about the silver market is indeed true, if J.P. Morgan is this short the silver market and unable to deliver even under duress, then perhaps the US should close down the Comex, because it has shown itself unable to be the price setter for the rest of the world in a metal with such broad industrial usage.

If it is not true, then the CFTC should publish its findings from its latest study of the silver market, and give the public the assurance that there is no manipulation in the silver market, and most importantly, why.

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8 Comments – Post Your Own

#1) On December 15, 2009 at 4:47 PM, kstarich (31.09) wrote:

Binve,

I will tell you here and will think about doing a blog about it.  I ran the astrology chart of the Comex and you would not believe....well obviously now you will....the absolute corruption within it.  THe chart itself is like looking at the chart of a computer unlike the chart of a person or a corporation that has a pulse or a mission.  I recently came to the conclusion that the entire Comex is really a paper dragon!  In it's chart there was a major Pluto transit on Nov. 8 suggesting a complete wipeout.  It's original purpose changed on that day is is now being taken over by an outsider who is manipulating it to an even greater extreme.  Thanks for posting this article.

Someone needs to get an audit of this company and take this Paper Dragon down.  Know any dragonslayers?????

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#2) On December 15, 2009 at 7:04 PM, ChrisGraley (29.88) wrote:

If we plug in $18 an ounce for silver...

 

That my friends is a $9 billion dollar bet and would be a heck of a margin call if silver has a run!

 

Tommorrow, I'm going to sell some stocks and buy more silver!

 

For those of you that don't understand the impact of that number, 500 million ounces is the estimated amount of real physical obtainable silver out there! They shorted all of it! And, they are only 40% of the total shorts! 250% of the silver that is out there is shorted! If silver has a run and I can't see how it can't with all the dollars still in the system, Chase couldn't possibly cover their short without destroying the company. Even if they could get it an average of $40, that would be at least a $20 billion dollar loss. My guess is that they would be hard pressed to get it at an average of $100 an ounce!

It's impossible to tell because this is uncharted territory.

 

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#3) On December 15, 2009 at 7:07 PM, ChrisGraley (29.88) wrote:

Sorry I appear to have misread.

They have only shorted 40% of the toal amount of silver in the world, so while not as bad, it could still kill the company if silver had a run.

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#4) On December 15, 2009 at 8:10 PM, Starfirenv (< 20) wrote:

Wow, good find, no great find. Corruption and manipulation bringing a "correction"? Who'da thunk.  This could go either way. These boys have the cheese and juice to pull it off. Maybe they figure that if they get it wrong, being "too big to fail", they can just get TARPED. Could this be the trigger for the Lunar (metal) rocket to go to the moon? Either way, if you like physical, longer term (6 to 12 mos) should be safe (and profitable!). JMHO.

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#5) On December 16, 2009 at 12:49 AM, uclayoda87 (29.34) wrote:

 This Red Army may give silver short sellers a reason to reconsider their position.

 http://www.youtube.com/watch?v=PqFpl31UwPI

My short term plan is to gradually buy into metals and small Canadian miners during this period of a rising US dollar index.  When the traders realize that Schiff was right again and that the Fed will not raise rates during an election year (or ever), the commodities bull run will continue and the US dollar index will retest the 72 low.  As binve pointed out in his prior blogs, this is just my opinion, which I'm willing to bet on with real money.

 

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#6) On December 16, 2009 at 3:36 PM, vriguy (79.05) wrote:

Bernanke does not enforce margin calls - he'll give Chase our money to cover their bad bets if silver goes up.  If, because of these shenanigans, the silver market crashes I am pretty sure small investors will be left holding the bag. 

Try to put that 500 million ounce short position in perspective. It equals 75% of world annual mine production... The total short position represents almost 100% of the total visible and recorded silver bullion in the world, and 50% of the total one billion ounces thought to exist."
 If 500 million ounces is total annual production, I find it difficult to believe the total silver bullion existing is only a billion ounces.

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#7) On December 16, 2009 at 4:08 PM, binve (< 20) wrote:

kstarich, Exactly, the COMEX is crooked. I have no doubt it is aware of the situation. It would be a very interesting experiment to see buyers en masse request delivery instead of rolling over or trading contracts. Very interesting indeed :)

ChrisGraley, Man, that would be a sight :)

Starfirenv, Thanks, I agree. I own plenty of physical silver and gold myself. I have very little doubt about the long term direction of PM prices.

uclayoda87, Thanks man!

My short term plan is to gradually buy into metals and small Canadian miners during this period of a rising US dollar index.  When the traders realize that Schiff was right again and that the Fed will not raise rates during an election year (or ever), the commodities bull run will continue and the US dollar index will retest the 72 low.

Yes indeed, that has been my plan for years, and I'm sticking to it :)

vriguy, maybe. But at some point if the demand is real (and I believe it is) then more and more investors will request delivery instead of just leaving their buys in paper at the COMEX. Ben can manufacture paper, but he can't manufacture Silver.

If 500 million ounces is total annual production, I find it difficult to believe the total silver bullion existing is only a billion ounces.

From my post: The Gold Blog. Gold/Silver/GSMs (and a little Oil for good measure) - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=258723

Silver is another monetary metal. Silver though has a very wide range of industrial uses. As such it straddles the line between a currency and a commodity. However Silver has some very interesting facts: Silver for a long time was not recycled (unlike gold which has been recycled for a long time in industrial applications). This is not true anymore, it is being recycled much more now. But as such, a large portion of silver is literally sitting in landfills in various chemical states. And because there is still so much industrial demand, the amount of silver sitting in vaults as a monetary metal is lower than the amount of gold. This makes Silver a bit of a conundrum at times. It whipsaws much more than gold.

Do a little digging, you will be surprised at the relative scarcity of Silver being warehoused..

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#8) On December 21, 2009 at 10:19 AM, XMFSinchiruna (27.60) wrote:

More on the scarcity of silver:

"Shifting to supply, we find another monumental source of bullish sentiment among serious silver investors. As it turns out, the world has experienced a structural deficit in the silver supply for each of the past 18 years, and the above-ground supply has dwindled accordingly. The United States has entirely disposed of its once-mighty strategic silver stockpile, and silver guru David Morgan estimated in 2006 that the entire above-ground supply of silver worldwide reached a paltry 500 million ounces. At today's prices, that equates to a market value of just $9.5 billion! If even a minute fraction of the investment demand presently targeting gold shifts to silver in the future, I expect this scarcity of physical supply to exert enormous upward pressure on silver prices."

 

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