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JPMorgan has amassed between 100 – 200 million ounces or more of physical silver.  Most of it is stored in London.  My friend Trader David R would agree.  He says he has seen the silver there himself.  According to Butler, their plan is to force silver’s paper price (Comex) lower and then buy the physical metal as cheaply as possible.  They use the same technique on gold.

It only takes around $2 billion annually to absorb the available 100 million oz. of silver not used by industry and jewelry fabrication.  But it takes over 50 times as many dollars to absorb the 80 million oz. of newly mined gold that is left over for investment purposes.

According to Butler, even if it isn’t JPMorgan that is the big buyer of physical silver (and he is sure that they are), silver has moved from weak hand to strong hands.

Butler wrote…

Even though JPMorgan was never able to get its net short position in Comex silver futures below 10 to 12,000 contracts over the past six years because of a limit to technical fund selling and raptor buying competition, it looks to me that the bank has been able to accumulate physical silver because there are different participants in physicals than futures. What this also highlights is the madness and illegality of having the paper price on the Comex setting the price in the physical market. If JPMorgan hadn’t been capable of rigging silver prices lower in 2013, it would never have been able to buy back 100 million ounces of short paper contracts and buy many tens of millions of physical silver as well.

I continue to be amazed at the amount and level of commentary in gold and silver that centers on manipulation. While I don’t agree with everything that is being said, there is no denying that the commentary about price manipulation in gold and silver is intensifying to an extent never witnessed previously. Hardly a day goes by when someone new doesn’t raise the issue, either pro or con. Further, the subject of manipulation appears to be unique to gold and silver, as I am unaware of any similar discussion in any other market. What does this mean? Since this is a highly unusual circumstance, there is no sure way of blueprinting how it turns out. But something tells me that the more widespread the subject of gold and silver manipulation becomes, the greater the likelihood it will end.

Butler Research, January 22, 2014

JPMorgan’s short position in Comex is around 80 million oz.  If they actually do own 200 million oz., as Butler states, then the CFTC would not have reason to take action on their manipulation.

JPMorgan acquires a majority of the (physical) silver that becomes available from mining, recycling and sales from existing holders, including SLV.

On the Comex, it’s the commercials (especially JPMorgan) vs. the speculators (the hedge funds).  Butler believes that JPMorgan is responsible for the large High Frequency Trading smashes of silver.

Butler’s views are clear – he says, “There is no escaping that silver is manipulated in price by JPMorgan and will be until it isn’t any longer.”

Unlike many in our industry, Butler does not buy into the conspiracy involving the U.S. Government.  He says they do it to make profit.  The fact that they are very long physical gold and silver is bullish.  The commercials are almost always on the right side of the trade with the speculators.

Butler says:

It’s hard not to conclude that JPMorgan’s ownership of physical silver and gold (futures and physical) will be bullish for the price; in fact, it looks to be the single most bullish factor of all. That’s because the most logical end game is for JPMorgan to cash out at much higher prices.

Butler Research

It should be clear by now that I have a great deal of respect for Ted Butler and highly recommend his excellent newsletter.  But I have always been willing to examine different views and I have a great deal of respect for Trader David R, whose credentials and background are beyond excellent.  He has worked for the bullion banks, represented Barkleys Bank setting the gold price in London and is actively trading the precious metals for his own account now.  When I bring up JPMorgan as the entity that is causing all of the HFT rapid drops in gold and silver he disagrees.  He says it’s the hedge funds and their computers working out of Chicago.  He told me:

You now have all these algo’s in Chicago who are trading gold against other commodities or indexes.  It’s all relative value trades.  These guys do not know the color of gold just the historical data and based off of any news they will buy and sell gold vs. other stuff.  You will see most movement ahead of US Equity open, when ETF opens, or economic data comes out.  But these Algo guys are managing $1 – $4 Billion of dollars, so they can have massive impact on buying and selling of futures.  They don’t care about the market they just need to buy and sell and the metals market is too small for this amount of money, so you will see greater movements. 

Now that the banks are all leaving the metals business, the liquidity is going to dry up, so these Algo guys will be responsible for much bigger swings when they need to sell and/or buy millions of ounces.  Volatility is going to be so far greater going forward and liquidity is going to be hard to come by.  These quants sitting in the rooms in Chicago do not care about you or gold, they just care about making a few dollars each day…… it’s become a casino…. you can thank your government for regulating the heck out of the banks and leaving this market now in the hands of the algo’s. 

I think we see new highs in gold sometime later this year or early next year….. I cannot see the FED continuing the QE withdrawal with all the economic data out, but gold should be supported on the downside and I want to buy dips now.  Inflation in other countries is growing and I think there is a HUGE risk that one of these central banks are going to mess something up soon because they usually do !!

Whether you agree with Butler or Trader David R, the bottom line is both are very bullish on gold and silver.

By the end of the month, the Fed will decide whether or not to cut back on QE.  If they do, it will be only $10 billion and they will try and tell you that inflation is under control, unemployment is not an issue and the economy is turning around.  Hogwash!  Read Shadowstats.com and see how the facts are twisted.  2014 will not end well (other than precious metals).

You now have all these algo’s in Chicago who are trading gold against other commodities or indexes.  It’s all relative value trades.  (For example, long gold short the stock market or vice versa).