And in the process has likely perpetrated and enabled the continuation of the biggest fraud in the financial markets. By now everyone knows about the absurd imbalance between JPM’s short position in the silver futures market and the availability of physical silver at the Comex/SLV. To review, JPM’s short position is several multiples of the amount of reported physical silver that is available for delivery at the Comex. For purposes of this commentary, I will set aside any discussion about whether or not the reported inventory is actually there or not. Of course, you would have to be either ignorant of the facts or an idiot to believe that it is.
It was announced 10 days ago that JPM was approved by the CME to operate a Comex metals storage vault. While on the surface this is no big deal, the manner in which JPM managed to get around the full review process has raised a lot of knowledgeable eyebrows in the precious metals market, especially in the context that JPM – by far – has the largest short position in paper silver in the universe, in addition to also having the largest proprietary position in OTC gold and silver derivatives. Again, both states of existence would be no big deal as long as the world could verify with its own eyes that JPM actually has the ability to deliver the underlying physical metal represented by the firm’s absurdly massive short position. That is the crux of the problem. Show me the metal you can deliver and feel free to make markets and short away. Otherwise there needs to legally enforced scrutiny. The CME, with its hastened approval of JPM as a vault operator has demonstrated that it is unwilling to enforce legal scrutiny. Furthermore, The JPM Comex vault news tells us all we need to know about the extent to which the bullion banks and their mafia inside the regulatory agencies and even the oval office (Obama’s new chief of staff is an ex-JPM guy) will go to fight their problem with precious metals.
Operating a gold and silver vault will now enable JPM to exploit the fact that most metals players who take delivery of their metal typically let it remain at Comex vaults for safekeeping. Again no big deal, because it is convenient and saves delivery fees, as long as the owners of the metal hold the vault operators accountable. In other words, if more players stand for delivery than JPM has available to actually physically deliver, JPM can just notify the owner that delivery has been made to its vault without ever having to make the actual delivery unless the owner asks for delivery into a private depository off the Comex. It has long been suspected that all of the current vault operators, especially HSBC and Scotia, engage in this “fractional” bullion banking scheme, but now that JPM has entered the vault storage game, there is no doubt in my mind that the Comex is running low on deliverable metal.
And by extension, it also serves to reason that SLV is running low on metal (JPM is the vault custodian for SLV – hmmm…), although I do not, like many, believe that SLV is empty. Again, a lot of commentators out there squawk about SLV being empty without ever having bona fide actual proof. I think from the standpoint of probability analysis, SLV is at least 1/3 covered (at any given time a large holder can exchange his SLV shares for delivery of metal – my bet is that SLV has enough to cover this present value of this possibility). I believe the Comex is less than 1/3 covered and this is why JPM had to rush into the vaulting business and jammed thru its approval by skirting the standard rules.
You can read about what just happened here: LINK I would recommend that everyone read through that because it is well-written, factual and educational. Let me just put some meat on the bones there by explaining the signficance of this event. Everyone who trades this stuff knows that there is a massively inordinantly large amount of outstanding April silver contracts still open with last delivery day being next Thurs, 3/31. As of today there were still 632 open contracts representing 3.16 million ounces of silver. I have never seen this large amount of open contracts so late in the delivery process. And given that the Comex is reporting as of yesterday that over 41 million ounces of silver are available for delivery, it tends to raise a lot of skepticism about the amount of silver that is actually physically there to be delivered. Historically, most open contracts in a delivery month get filled within the first two weeks of that month. If this view is correct, it would make sense then that JPM wanted to rush through the approval of a licensed vault that it make phantom deliveries into and no one would know the difference unless they ask for delivery out of the vault. Again, probability analysis would say that very little of that silver will be called upon like that (by the way, anyone can track the reported flows of silver in and out of Comex vaults at the CME website: LINK – you can also track daily changes in open interest, etc on that site, that’s how I know that very little metal that is delivered actually is demanded from the Comex vaults).
JPM’s Game Of Chicken
As you can see, JPM likely does not have the resources to make good on the actual phsyical delivery of all of the silver that is standing for delivery. So the next best alternative is to play the odds and deliver electronic silver into a surrepetitiously approved vault and anticipate that most, if not all, of the deliverees (the “stoppers”) will never ask for private delivery.
Our fund, however, stood for delivery of 3 contracts this month. We were given notice on one of them right after first notice day and that silver was made available by HSBC to be picked up by our carrier and delivered to our private depository within the appropriate timeframe. HSBC, however, changed the rules on the other 2 contracts. We were notified that the silver for the other two contracts was being delivered last week. Why they waited 3 weeks to notifiy us on the other two is open for conjecture. HOWEVER, this time HSBC informed my partner that in order for us to send a carrier to pick up the bars he had to fill out a bunch of paperwork and send a copy of his driver’s license and that it would take HSBC five days to process everything. Today being the 5th day, we called for a status update. They informed him that he had to send them a copy of his passport because his driver’s license had expired. I’m not sure how long it would have been before they notified us of that fact if we had not called.
The point here is that we are now seeing all kinds of tactics being legally – and illegally – employed in order to make the process of taking delivery of metal from the Comex more burdensome and further enabling the big ponzi scheme to keep going on there. But the fact of the matter stands that events like the JPM vault and the sudden new delivery requirements of HSBC serve to further amplify the fact that the Comex and SLV are running out of actual physical silver and the desperation to hide this fact is growing stronger.
While I still don’t expect that a Comex delivery default will occur this month, or even this year, the cracks in the system are growing wider and one of these days we will wake up in the morning to find gold and silver prices that are several multiples higher than the day before and the bid/ask spread in the markets for these products will be a country mile wide. THAT is a day that will fun watch…