No matter how convinced I may be that silver has been manipulated downward in price by JPMorgan’s concentrated and rapidly increasing short position in COMEX futures contracts; it is vital to explore why that may be wrong. Particularly with a conviction held for a long period of time, it is important to make sure I am not missing anything basic. The best way to do that is to listen closely to those who may disagree with the Silver manipulation allegations. However, uncovering the arguments against a Silver manipulation is not as easy as you might think.For one thing, there is certainly no strong case against manipulation being made by those that should be denying it forcefully, namely, JPMorgan and the regulators at the CFTC and the CME Group. Aside from a brief TV appearance in April which tried (unsuccessfully) to dismiss the matter, JPMorgan has been uncharacteristically mute on an allegation that is serious beyond description. That’s why I wrote to JPM’s board of directors recently. The CFTC has certainly denied that a Silver manipulation existed on multiple occasions in the past, including public explanations in May of both 2004 and 2008; but since the evidence of a short side concentration by JPMorgan was revealed in August 2008, the Commission has been investigating silver again.
The way I see it, that’s less of an argument against a Silver manipulation and more that the agency is investigating silver because JPM’s concentration may be manipulative to the price. However, like JPMorgan, the Commission has been silent on the specific allegations of manipulation via JPM’s concentrated position. The CME, true to its recent tradition, is only concerned with increasing trading revenues and can’t be bothered to address allegations of the most serious market crime possible being in progress.
There is no excuse possible that would permit JPMorgan to hold 31% of the entire net COMEX silver market (minus spreads) or for the four largest shorts to hold 49% of COMEX silver (as of the most recent COT). Just to give you a sense of the lopsided nature of big shorts compared to big longs, on the same methodology (no spreads) the 4 biggest longs hold only 13.4% of the COMEX silver market. JPMorgan, alone, holds a position more than 2.3 times larger than the 4 biggest longs combined. That’s obscenely manipulative. Plus, JPMorgan has been virtually the only active short seller in COMEX silver for months.
What’s being said by others that argue against the existence of the Silver manipulation? Some actually sound reasonable at first, but when you dig into the arguments, they just don’t hold up. Most center on JPMorgan holding physical silver or hedging for customers, as a reason to explain the outsized short position on the COMEX. Another version holds that JPM is holding offsetting positions in the OTC market, which is said to be much larger than the COMEX. As I said, all sound reasonable at first; until you apply some common sense.
To the claim that JPMorgan holds the physical silver backing up its massive concentrated short position, why didn’t the head of commodities for JPM say that was the case in the April TV spot? Instead she said it was for customer positions. Which is it? JPMorgan has sold roughly 80 million ounces of paper contracts short on the COMEX over the past 2 months, increasing their total silver short position to nearly 150 million oz. Does this mean they bought 80 million physical ounces in the past two months or that they had the 150 million physical oz all along?
In reality, even if JPMorgan did hold all that real silver (I don’t believe that for an instant) it would make no difference in terms of manipulation and concentration. There is no legitimate economic motive to holding such a large physical long position and paper short position simultaneously indefinitely, other than as a means to control the price, which is hardly legitimate.
JPMorgan has been the dominant short in COMEX silver for 4 years. If JPMorgan were only interested in “hedging” a big long physical position, that would be a one-time transaction for a non-producer; they wouldn’t be actively reducing and increasing their paper short position. Regulators would never permit Exxon or Saudi Arabia to hold a concentrated position that comprised 31% of the entire oil futures market, no matter what cockeyed excuse was offered. If any US bank held 31% of the corn or wheat futures market, heads would roll the day it became known. It is the outsized concentration that is the issue, not the invented excuses.
This allows for the possibility that JPMorgan has arranged for a series of fake hedging accounts that it can say are behind the giant short position. But JPMorgan is reporting to the CFTC correctly that it is in control of the accounts; otherwise the positions wouldn’t be in JPM’s name and control. That’s what matters – JPM’s control. Commodity law would never allow the flimsy excuse of hedging to permit concentration and manipulation.
The commodity futures market is an open auction market; not a specialist market like the New York Stock Exchange used to be. That means that the price of silver and other commodities is to be determined by the open meeting of legitimate buyers and seller, speculators and hedgers alike, and not by means of a dominant trader who smoothes out and controls the price. Nobody decreed that JPMorgan was to be the controller of the silver price and these market-making excuses are nonsense.
A final excuse for JPM’s grotesquely large concentrated COMEX short position is that it only represents a small part of JPMorgan’s total position when compared to the much bigger OTC market. In other words, JPM’s COMEX short position is offset by (presumably long) OTC positions, netting out and neutralizing the COMEX short. The OTC market may be bigger in many things, but in silver, the COMEX is the big dog. COMEX silver is the fountainhead for world silver prices and the move to near 24 hour Globex trading only strengthens the COMEX’s dominance.
Some common sense is again in order.
JPMorgan has suffered very negative publicity for the past four years as a result of its big COMEX silver short position (including being sued civilly for manipulating silver); something the bank should be interested in ending. If the OTC market were so much larger than the COMEX, it would have been very easy for JPM to close out the COMEX short and confine its dealings to the (supposedly) much larger OTC market. Had they converted to the OTC market, no one would have been able to pinpoint JPM’s concentrated short position and there would be no negative publicity. Yet for more than 4 years, JPMorgan has remained with its COMEX short position and has had to endure the negative publicity so hated by financial institutions. The reason is simple – the COMEX is the big dog and JPM can’t transfer the position to the OTC market and is stuck with the position and the negative publicity that entails.
I admit that the silence of JPMorgan, the CFTC and the CME regarding JPM’s concentrated short position has naturally raised questions asking for an explanation. But that doesn’t mean we should accept any excuse as an explanation, particularly if the explanation doesn’t hold up when examined. There has not been a legitimate explanation for JPMorgan’s massive concentrated short position to date and I doubt there ever will be. I do expect that JPM, the CFTC and the CME will throw out something eventually and it is at that point that the legitimate discussion will begin. We are not at that point yet.