JPMorgan Chase cornering silver bullion market?

May 1, 2015 01:30 PM

At the same time, JP Morgan Chase restricted the use of cash for selected markets and went so far as to restrict clients from using cash for credit card payments, mortgages, equity lines and auto loans. There will also be no ability to store cash or bullion in their safe deposit boxes.

JP Morgan’s massive silver buying brings to mind the Hunt Brothers’ attempt to corner the silver market in the late 1970s. The Texas oil-tycoons tried to corner the silver market by accumulating a massive silver futures position.

Regulatory authorities increased margins which saw silver prices fall and the trade go against them. When they failed to meet a $100 million margin call they were almost completely wiped out.

The Hunts faced losses of $1.7 billion and a widespread panic on Wall Street was averted when a consortium of U.S. banks bailed out the main brokerage firm involved.

The story has become the stuff of legend in the annals of precious metals trading and indeed trading. Before their buying on the Comex, silver traded at $6 an ounce. It gradually rose in price before a blow off spike to $48.70 in January 1980.

At the time the Hunt brothers were believed to have acquired futures contracts worth one third of total annual global mine supply on leverage. Had they been in a position to meet the margin call the outcome may have been quite different.

Had they accumulated physical silver rather than paper silver in the form of futures contracts, as JP Morgan are doing, the Hunts would likely have made an absolute fortune.

So, it is interesting to note that legendary silver market analyst Ted Butler has estimated that JP Morgan may currently hold far more than their official figure of 55 million ounces.

Butler believes the true figure to be closer to 350 million ounces. Annual global silver production is 820 million ounces which, if Butler is correct, puts JP Morgan in a position to corner the physical silver market today, unlike the Hunt brothers back in 1980. As this would equate to a holding 42.7% of total annual supply.

JP Morgan has been acquiring this vast hoard of physical silver while holding the largest short position in the silver futures market, i.e. while suppressing the silver price with its unlimited access to free money, according to Butler.

What motivation could one of the key insiders on Wall Street have to accumulate such vast quantities of physical silver? It seems clear JP Morgan anticipates strong demand for physical silver in the not too distant future – either due to another crisis or purely due to the tiny size of the physical silver market and very favourable supply demand dynamics.

In the event of more market dislocations, demand for silver and gold will surge again. Heretofore – in similar circumstances – demand has been dampened by institutions dumping contracts for massive volumes of silver, paper or electronic silver, onto the futures  markets.

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About the Author

Mark O'Byrne is executive director of Ireland-based GoldCore.