Most investors seeking silver exposure prefer the paper over the pure, the likeness over the legitimate, the pseudo over the “sound,” ultimately…the fake over the physical.
Case in point: SLV, the iShares Silver Trust ETF, currently the largest silver ETF on the market.
The trust holds a whopping 325 Million ounces of physical silver, an amount large enough for many investors to call it silver’s “death star,” considering its open-ended setup for large-investor price manipulation.
Fortunately, SLV’s setup requires the trust to deposit the physical metal in accordance to the shares bought and created by investors.
The remote risk, of course, is that the collective buying power of the world’s largest investors can easily dwarf the actual amount of physical silver available on the global market.
Given this requirement, you can see how SLV transactions can drive the physical market.
For instance, SLV played a significant role in silver’s price skyrocketing in 2011 as demand for the ETF drove the trust’s physical holdings from zero (five years prior) to 360 Million ounces by April 2011.
More recently, in the last days of December 2018, there was a huge surge in SLV buying, yet no silver deposits were forthcoming, leading analysts to speculate that a large short on SLV was forthcoming.
And indeed, that’s what happened.
So, what does this tell us?
Against the backdrop of real supply and demand (and the fact that there is less physical silver supply in the world due to decreased silver mining and production), the “real” price of silver is not what you see in the spot market.
SIlver prices are being manipulated and obscured. The biggest manipulator of all being, of course, JPMorgan.
This is an old premise, a narrative so oft repeated in both truth and suspicion that it has almost evolved into something of an “urban myth” among precious metals investors.
But this near-myth is not without evidence, as it’s now subject to a Department of Justice (DOJ) investigation.
On November 6, 2018, a JPMorgan trader pled guilty to manipulating gold and silver prices.
During the Justice Department’s announcement, they made it clear that the current JPMorgan investigation is ongoing.
We wonder if the DOJ is investigating how JPMorgan has been pressuring silver prices downward since they took over Bear Stearns’ short positions in 2008, or whether the DOJ is more interested in short-term manipulations, say, “spoofing” and other minor violations of the sort.
According to reports, JPMorgan has always been net short silver via COMEX futures.
Their risk-free manipulation scheme consists of two parts:
- Laying down massive shorts on COMEX silver futures to bring prices down; and
- Accumulating physical silver at discount prices.
Not only does this price obfuscation deceive investors as to the true fundamentals of the silver market, it also allows JPMorgan to continue buying physical silver on the cheap as investors–particularly SLV or other ETF holders–dump their shares (causing the ETF trusts to dump their physical holdings…into JPMorgan’s hands).
It’s a genius strategy. Its mechanisms are as brilliant as its ethics are questionable, nefarious, dark.
When silver prices plunge, it turns out that 99% of the time JPMorgan is holding the largest single short position.
Last June, JPMorgan shorted 40,000 silver contracts. Aside from holding the largest short position in the market, JPMorgan was the only commercial short at the time.
With such immense downward pressure on the market, naturally, silver plunged.
Then in September, with prices at a low, JPMorgan closed their short position.
Based on what we know of their strategy, September would have been the perfect time for JPMorgan to scoop up the physical metal.
In October, JPMorgan then re-shorted silver with 15,000 new contracts.
But a month later, the DOJ announced JPMorgan’s guilty plea on market manipulation. JPMorgan quickly bought back 15,000 contracts they had just shorted.
The Main Takeaway:
In an efficient market, you can rely on prices to reflect real supply and demand conditions, the “true” fundamentals of a market. This is not the case with silver.
If you base your silver investment decisions on market sentiment and price rather than fundamentals, you can easily be misled to by the price manipulations of big institutional players, namely JPMorgan.
If JPMorgan ceases (or is forced to cease) its manipulative practices, then silver prices will fly much higher to reflect its true valuations.
More importantly, it’s important to bear in mind why JPMorgan is so heavily short silver. It’s likely they are using the COMEX to depress silver prices in order to accumulate the physical metal.
Silver is sound money. And JPMorgan knows this, hence their strategy.
Yet they also know that it takes only a little volatility and price suppression to convince less-sound investors to give up their silver so that it can fall into the hands of JPMorgan.
If you believe in sound money, if you truly want to buy silver and hold it as a safe haven, then don’t let this sham fool you.