May 042015
 

On Friday GoldCore posted an article asking whether JP Morgan was cornering the silver bullion market, noting their Comex warehouse stocks of 55 million ounces and claims by Ted Butler that they “may be holding as much as 350 million ounces of physical silver.” My short answer: I don’t think so.

The clear import from the article is that because the warehouse has JP Morgan’s name out front that all the silver insider is theirs. However, JP Morgan has large market share of global precious metal market activity with a significant number of industry participants using JP Morgan to buy and sell physical and futures, and for storage services. It is therefore highly unlikely that none or little of the silver in JP Morgan’s warehouse is held on a custodial basis for clients.

While it is not possible to know who owns the metal, either from Comex eligible/registered warehouse reports or house/client delivery reports (do you think banks would allow a reporting structure that would make it so easy to work out their proprietary position?) as a data point consider the following net amounts of silver taken delivery of since JP Morgan opened its silver warehouse (data from Sharelynx):

  • Customers of JPM have taken delivery of a net 4781 contracts (23.9 million ounces)
  • JPM’s house (proprietary position) delivered a net 4683 contracts (23.4 million ounces)

Since a bank trading futures can receive or deliver silver held in other banks’ warehouses, we can’t just assume that JP Morgan owns 23.4 moz. Nevertheless, these figures at least show a significant amount of customer activity by their clients.

It should also be considered that a profitable part of a bank’s business is arbitrage and market making. For example, if silver speculators go long futures, JP Morgan can make a market by going short (there has to be a short for every long) and then hedge itself by buying physical silver.

So the silver in JP Morgan’s warehouse could be owned by its clients (individual and wholesale), other banks, or owned by itself but hedging other short positions. Only after taking off these three would any remaining silver be owned outright by JP Morgan.

As to the 350 million ounce figure, the only public explanation of this figure is this December 2014 article.  which it should be noted is a work of reasoned speculation, but speculation nonetheless.

Ted says that “I believe much more than 100 million oz of silver, perhaps double or triple that amount have been accumulated by JPMorgan using the SLV to transfer metal to its own London warehouses completely undetected and unreported” (my emphasis). Ted also claims that JP Morgan has acquired “as many as 70 million oz of Silver Eagles, or half the amount produced by the US Mint since April 2011.”

The main logic behind these claims is the “counterintuitive” metal flows in SLV and US Mint Eagle sales, namely, “that the public doesn’t normally buy investment assets on falling prices” and Ted says that he thinks “the most plausible reason is the presence of a big buyer in silver coins, whether those coins are Silver Eagles, Maple Leafs or Philharmonics.” I tend to agree with Steve St. Angelo in this article that Ted is not showing much faith in individual silver investors.

By Ted’s argument, any silver inflow/increase in mint sales, ETFs, funds, warehouses/custodians stock over the past few years is at odds with the falling silver price and the behaviour of gold ETFs (which have declined) and therefore must be supported by buying by JP Morgan for its secret long position. All I can say is that JP Morgan must be very busy intervening in all of the major known (reported) stocks of silver below (as maintained by Nick here). By this logic, 350 million ounces looks like an understatement!

Gold Money (maybe James Turk can confirm if JP Morgan is a big client of theirs)

Gold Money Stocks

Bullion Vault

Bullion Vault Stocks

Perth Mint Pool Allocated (I can confirm JP Morgan does not own any of this, all retail investors)

Perth Mint Stocks

Bullion Management Group (Nick Barisheff needs to give JP Morgan a call, looks like he has been left out)

Bullion Management Group Stocks

Permanent Portfolio Fund

Permanent Portfolio Fund Stocks

Now all the major ETFs, starting with iShares

ishares

ZKB

zkb

ETF Securities

etfs

Julius Baer ETF

Julius Baer

Deutsche Bank ETF

Deutsche Bank

I could go on, but I think you get the point: investor interest in silver in the face of falling prices is a global phenomenon, not a JP Morgan one.