As written in William Shakespeare’s Hamlet, Marcellus stated “Something is rotten in the state of Denmark”. Indeed, something is clearly not right with silver these days!
On the one hand, we have the US Treasury and other mints completely out of stock for Silver Eagles, Maple Leafs, and other official silver coin. Coin dealers have indicated demand is extremely high. Given the unusually high demand, and the lack of supply, simple economics would dictate an increase in price.
Yesterday, the price of silver on the COMEX plunged by 11%, after trading lower in the prior trading days as well. It is down again today. But the COMEX doesn’t just trade physical metal. They mostly trade futures contracts, or “promises” for metal. Contracts that can later be offset with contracts going the reverse direction.
So who is selling all these contracts? Who has enough silver on hand to make promises of silver believable? And more to the point, why would they be dumping silver contracts, promising incredible amounts of silver into the market?
JP Morgan Chase bank is currently at the center of a US Justice Department probe looking into price manipulation in the precious metals markets. Metals traders from the company have already been charged with criminal activity. Also, JP Morgan has at least 140,000,000 ounces of silver on their books, the largest silver hoard ever accumulated by anyone, anywhere, at any time, and far greater than the Hunt brothers controlled in the 1970s. So JP Morgan is “probably” the “who”. They have the means and capacity to move the market, and they have a history of doing so!
Is JP Morgan dumping silver contracts to raise cash for their own behalf? I don’t think so. Yes, we are in a crisis. But if they needed cash, why would they have pulled their excess reserves from the repo market last September, also making it so they can’t get loans? Also, how did they pass the Fed’s stress tests if they were in a world of hurt? No, I don’t think JP Morgan was selling silver contracts to raise cash for themselves.
There is a high probability that JP Morgan insured another bank in the world to help keep them afloat. A bank that is systemically critical to the world’s financial system. JP Morgan may soon find themselves having to make good on that insurance commitment, and therefore may need to raise cash in case the payout is required. They raise the cash by selling contracts for silver, instead of the silver itself. If all works out okay, they buy back the contacts, and no silver changes hands. If it doesn’t work out okay, then JP Morgan will have a lot of silver to hand over to the buyers of those contracts!
Who could the counterparty be that might be in trouble? The media has discussed two possibilities: Deutsche Bank or HSBC, both European banks. Europe was in trouble economically PRIOR to the coronavirus. The EU is blowing apart as Britain left the system. Italy is ready to default on their debts to Germany, and France just shut down. The European Central Bank is on the verge of collapse. Yes, Deutsche Bank, and to about the same degree HSBC, are BOTH in deep deep trouble. If either of these banks fail, it will be Europe’s Lehman moment times 100! They are far larger than Lehman!
Something is rotten in the financial system, such that when the Fed injects Trillions of dollars, and it still isn’t enough! There is a failed bank in the system, and we just don’t know who exactly it is yet. The tide needs to go out further so we can see who is swimming naked!
As for silver, paper doesn’t mean anything. It is a short term manipulation of price. I am a believer in the REAL demand, as evidenced by shortages. This appears to be a short term blip, and silver I believe will recover and exceed prior highs.