This idea that the Chinese are hedging silver looks good on the surface but does not excuse what is going on at the COMEX. First off, the concept of hedging means that if you have an asset and you are concerned that it may decline in value but you do not want to just sell it, you will lock in and protect the value through derivatives by selling a short contract. If the value of that asset goes up, you may book a small loss, roll over your short at a higher price, and keep the asset. If the value goes down, you deliver the asset and pocket the premium on the short to recover the lost value.

When you have an escalating short position that has been maintained for years even as that asset continues to rise, this is no longer considered hedging. You have now crossed the line into price fixing activity. Those looking to protect the value of an asset have no motivation to extend losses and build further liability. The open short interest has risen steadily over the years. This is not consistent with the behaviour of one that is interested in protecting the value of an asset.

And if indeed there are legitimate owners of silver that have put in short orders, that does not excuse the traders at JPM from front running that exposure and freqently raiding the market to profit from speculators on the long side. Anti-trust legislation exists to prohibit such activity and regulators are required to enforce those rules. They have not done so. Also it does not explain how the increase in margin requirements have been timed such that spec longs are most impacted and it does not account for how this was leaked to allow heavy shorting of the mining stocks before the margin increases, thereby participating in illegal insider trading.

We also have not addressed why the media is so biased against silver and precious metals, if indeed this short position is all about legitimate Chinese hedging strategies. Clearly there is an agenda to excuse the oversized short concentration in silver, or ignore it as if it is not an issue.

JPM is the custodian of the SLV and I have my doubts that they are playing by the rules in how the bullion leverage of that ETF is managed. It is all very convenient to present Chinese hedging as a deodorant for the entire documented short open interest in silver but I do not think it stands up to scrutiny.

cheers!

mike