TRUMPING PAPER SILVER
For many years the world consumed more silver than was produced. It was called a consumption deficit. That stopped around 2006. The 10 billion ounces that existed in 1940 have been depreciated by 90% over the past 75 years. Even though industrial demand takes up to 90% of the silver mined or recycled, this demand does not exert the biggest influence on price. It is the other 10% that typically moves the price. The reason silver prices climbed to near $50 in April 2011 was due to strong investment demand for physical silver. The reason prices have declined since then is because of weak investment demand. The key to the future silver price depends upon investment demand.
A distinction must be made between silver futures and physical silver. While aggressive buying of paper futures contracts on the COMEX will cause the price to rise temporarily, that type of buying always ends with aggressive selling. Over the past 30 years, every time the hedge funds have purchased electronic contracts aggressively, the commercials (big New York banks) have sold short enough contracts to cap the price. The funds only trade leveraged paper for short term profit. There is an unlimited supply of these electronic silver contracts. However, real silver is both scarce and rare by almost every measure. While the commercials can sell short unlimited quantities of paper silver, there is no practical way of selling short physical silver. When physical silver investment demand revives, only the sale of real silver will satisfy that demand, not paper contracts.
Around 100 million ounces are available for investment demand. Numerous members of the world’s financial elite could write out a check for that amount and absorb all the new silver. Just because no one has recently tried to acquire a big chunk of silver, doesn’t mean no one will try. In fact, history suggests it is only a matter of time before someone big moves into silver. When paper silver is overturned by one buyer or many buyers, the price will make up for years of mispricing.
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INTERVIEW
Q: Lately you’ve been suggesting the silver manipulation you write so much about is on its last legs. Why?
A: It has turned into one of the longest manipulations in history and since all manipulations must end, it is going to end soon. That’s largely a function of how blatant it has become. So many people see it now. The new Enforcement Director at the CFTC recently brought charges of manipulation in COMEX gold and silver futures. This indicates a remarkable turnabout for the agency.
Q: You’ve been focusing on JPMorgan’s perfect trading record. Can you explain why?
A: Because it is incontrovertible proof that JPMorgan is the big crook behind the silver manipulation.
Q: In what way?
A: Just like no baseball slugger can bat 1.000 for 9 years running, no one can establish new short positions in COMEX silver for 9 years running without ever having a loss. They have only profits on hundreds of thousands of contracts. No one is that good. The only possible explanation is that the game is rigged.
Q: If a person shorted 100 stocks, the chances of them all going down is almost impossible. Are you saying they did hundreds of thousands of silver trades on the short side and they made money on all of them?
A: Yes.
Q: How do you know this for sure?
A: The same official CFTC data that I have followed and written about for decades show this clearly. That’s why I get away with calling JPMorgan the big silver crook without any challenge from the bank, the COMEX or the regulators. It smells to high heaven.
Q: That sounds like a form of corruption. How much physical silver has JPMorgan accumulated while they held the price down?
A: My best estimate is upwards of 600 million ounces, or around 100 million ounces per year for the past six years.
Q: Why did they buy all this silver?
A: Unless JPMorgan has secretly converted into a non-profit organization, I would assume it did so to make a lot of money, same as with any asset it acquired. The kicker here is that JPMorgan has made hundreds of millions of dollars in trading COMEX silver futures from the short side and now stands to make billions when it takes its boot off the neck of the silver price.
Q: Talk about the perfect crime. How did they pull this off?
A: JPMorgan and two or three other large short sellers were able to add as many new short contracts as needed to cap every silver price rally for the past nine years. JPMorgan could wait it out until the buyers, the technical funds, began to sell at some point. Then the big shorts would buy back their short positions at lower prices, with profits and never a loss. It’s quite the racket.
Q: Isn’t that against commodity law?
A: Sure, but up until now the regulators at the CFTC have looked the other way.
Q: Do you see any change on the horizon?
A: I’m hopeful that the new Enforcement Director at the CFTC, James McDonald, might make a difference.
Q: In what way?
A: First, let me take a moment to thank all your readers who did take the time to write to McDonald the beginning of April. We can’t know for sure what effect writing to him might have had, but he did announce on June 2nd charges related to manipulation in COMEX silver and gold futures for the first time in decades.
Q: You still seem to think that this is a big deal?
A: At this point, yes. However, if much time passes and JPMorgan is still allowed to add silver short positions on higher prices, then I will change my mind. As I’ve said, time will tell.
Q: What do you hope McDonald will do?
A: Tell JPMorgan, behind the scenes, that it can’t add new silver short positions.
Q: What will that accomplish?
A: It will end the silver price manipulation once and for all and set the price free.
Q: JPMorgan could decide to stop shorting at any time. They don’t need government prompting do they?
A: They could do so at any time they choose and they very well may. They certainly have plenty of reasons to let it fly.
Q: What’s the biggest reason?
A: JPMorgan can make the truly big money – many billions, when silver prices soar. Should silver go to $100 an ounce, JPMorgan will make $50 billion.
Q: Does their big silver hoard make a price rise inevitable?
A: Absolutely, there’s no question we are going to see silver at dramatically higher prices.
Q: Unfortunately, a lot of people who own silver are losing patience with it. What do you say to them?
A: The underlying facts are more bullish than ever. The price is ridiculously cheap and the risk is virtually nonexistent.
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