Dave from Denver…
Thursday, November 17, 2011
The volatility in silver trading is ramping up this week and with good reason: JP Morgan (this name keeps popping up in connection with fraud and corruption - just coincidence I guess - it's a good thing JP Morgan has an ex-director in the White House advising Obama daily in order to make sure JP Morgan receives proper treatment from the authorities) - JPM is hopelessly short Comex silver futures and by the explicit admission of one of the CFTC directors, JP Morgan manipulates the silver market illegally.
Interestingly, JP Morgan recently decided to make itself one of the Comex custodians for Comex silver and opened up a vault for that purpose. The Comex inventory of gold and silver is reported on a daily basis and breaks out the inventory between "eligible," which is metal being "safekept" at the Comex by investors who have taken delivery, and "registered," which is the metal that has been certified by the Comex to meet its delivery standards and is being held for the purposes of delivery.
Yesterday, in a move which raised eyebrows throughout the precious metals trading community, JP Morgan moved 1.1 million ounces of silver from the the "eligible" bin and into the "registered" bin. This amount represents nearly 50% of JPM's "eligible" silver. (Please note: this commentary will not address questions about the verifiability and validity of the reported Comex inventory of gold and silver, as there have been many questions raised about this, it is not audited independently and, as we have seen with MF Global, et al, Wall Street tends to invent its own accounting standards).
Having said that, in studying the Comex open interest and inventories for nearly 10 years, I can say that the outright size of this inventory move by JP Morgan is unusually large and would suggest that JP Morgan is anticipating the probabilty of having to deliver a lot of silver for the December delivery month, of which JP Morgan is likely short at least 17k of the current 34k open interest, or 85 million ounces. Please note that there are still 9 trading days until the "first notice" day, November 30th, for December silver and I expect that the open interest will decline substantially between now and then. However - remember I like to look at the truth behind "however" - in order for the December open interest to get down to a level which represents just the total amount of registered silver - roughly 33 million ounces - the December open interest will have to bleed down to 6600 contracts. This is a big liquidation in just 9 days. I would suggest that JP Morgan's inventory behavior implies that delivery supply could get very tight this month.
I would also suggest that JP Morgan is making a very aggressive effort to manipulate the market lower. Make no mistake about it, every unusually large price-spike down in the intra-day trading is irrefutably JP Morgan traders manipulating the market for the purpose of trying to create selling by the funds who are long silver futures and thereby alleviate any delivery stress and accountability on JP Morgan and its CTFC certified illegal market activity. Oh ya, and ultimately accomplishes the ultimate Wall Street goal of taking money from your pocket and putting it in their own pocket.
The key here is to understand that the action between now and first notice day for December delivery has nothing to do with market fundamentals or outright global demand for silver and everything to do with JP Morgan's ability to try and force the silver market lower to protect its short position AND the unwillingness of our Government to enforce the laws in place to prevent this kind of market manipulation. Furthermore, the key to trading and investing in silver when the market goes through phases like this is to either hold what you got and don't watch the intra-day volatility or buy the down-spikes aggressively and take some profits on the rebound, but make sure you take full advantage of this market inefficiency and wealth-enhancing opportunity and increase your overall holdings.
One of these days the market is going to blow up in JP Morgan's face because they won't have enough physical supply of silver to meet delivery demands and we'll be reading about JP Morgan the same way we are reading about MF Global, only it will be many multiples more severe. It will potentially be catastrophic to the U.S. dollar and any remaining faith thereof. You want to make sure you have as much of your paper money moved into gold and silver because when the market does blow up like that, the end-game will be near and gold and silver will undergo a breathtaking move higher. I would suggest that behavior like we are seeing by JP Morgan this week indicates that the "blow up" event is getting closer.
