JP Morgan has taken delivery of almost 10 million ounces of silver over the last month bringing its current holdings to just under 14 million. As the chart shows, something has changed and JPM is adjusting its strategy in the silver market.
According to analysis by Ted Butler, JPM has had an abnormally large short position of paper silver in the futures markets ever since they acquired Bear Stearns in 2008. He estimates JPM’s current short position to be 18,000 contracts, which represents 90 million ounces of silver.
The new strategy being employed by JPM is likely to be one of the following:
- Acquire as much physical silver as possible to dump on the market, forcing silver prices to fall and enable JPM to unload its short position in the futures market. JPM takes a small loss on the physical silver and a huge profit on their paper futures contracts.
- Acquire as much physical silver as possible prior to covering their futures positions. Depending on how quickly JPM covers, the loss on the paper contracts could be limited, while the long-term growth potential of the physical silver remains.
- Acquire as much physical silver as necessary to enable delivery to those parties taking the opposite side of JPM’s short issues.
- Perhaps some combination of all of the above.
Judging from past behavior of these Wall Street giants, one would suspect that JP Morgan is likely to chase after whatever gives them the most profits in the shortest time (option 1). However, Mr. Butler has noted that over the past year of frantic turnover in COMEX silver inventories (in and out movement) there has been some big underlying demand that has not been so obvious to the main stream. Whether JPM plans to dump their accumulated physical silver at some point is unknown, but generally folks buy when they expect something to go up.