JP Morgan and Silver.

JP Morgan has added about 50 million ounces of silver to its COMEX approved depository stock pile since 2011.

JP Morgan’s increase in its holdings coincides with large decreases in the silver stock piles of bullion banks HSBC and Scotia Moccata.

Does JP Morgan’s accumulation of silver mean they are trying to corner the silver market?

UPDATE: JP Morgan and Silver- August 27, 2016

The Tiny Silver Market

Silver is a very valuable metal with many industrial uses. It is used in electronics, solar panels, tableware and medical equipment. Silver is also prized for its beauty and is used to fashion jewelry. Investment demand in the form of silver coins and ETF’s has soared since the financial crisis of 2008.

Sales of American Silver Eagles

Sales of American Silver Eagles have skyrocketed during the years following the financial crisis of 2008 and hit a record of 44 million in 2014.

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Sales of Silver Coins from the Canadian, Chinese, Perth and U.S. Mints

Silver coin sales at the Canadian, Chinese, Perth and U.S. Mints have increased dramatically since 2008.

Silver Exchange Traded Fund Demand

Silver ETF demand soared following the financial crisis of 2008. Silver ETFs now hold over 500 million ounces of silver.

Silver is rare.

Fewer than 900 million ounces of silver are mined each year. As silver is produced, it is consumed. Unlike the gold market where there are massive gold hoards at central banks and in private vaults, there are no major government silver stock piles and silver demand is met primarily by current mining production. According to the Silver Institute and the CPM Group, silver has been in a supply defict for the past few years.

Silver is cheap.

We have often remarked how cheap siver is in nominal dollars per ounce (under $16.50 an ounce at the time of this post) and in relation to the price of gold as measured by the gold silver ratio that is about 72 to 1 today.

At current prices, an entire year’s global silver supply can be bought for about $13-14 billion.

The Hunt Brothers recognized the value of silver and accumulated hundreds of millions of ounces in the late 1970’s before being driven into bankruptcy on Silver Thursday in 1980 by a change in COMEX rules.

Warren Buffet, an outspoken gold critic also once owned 130 million ounces of silver.

Now JP Morgan is acquiring a large amount of silver.

Is JP Morgan Trying to Corner the Silver Market?

Gold Core’s able precious metals analyst Mark O’Byrne has taken notice of JP Morgan’s silver holdings increase and has posed the question: “Is JP Morgan cornering the silver bullion market?

JP Morgan Silver Stocks

JP Morgan has increased its silver stock pile to well over 55 million ounces.

JP Morgan’s Accumulation of Silver Is More a Defensive Than Offensive Measure

From examining the chart above, it’s easy to discern the huge increase in JP Morgan’s 55 million ounce silver stock pile. Yet does such an large increase in silver holding signal JP Morgan’s intention to corner the silver market?

For starters, 50 million ounces is ten times less than the amount of silver that is locked in silver ETFs (JP Morgan is the custodian for SLV, the largest silver ETF) and less than 7% of the annual global silver mining production. JP Morgan would have to amass far more silver before they could be considered to be within striking range of cornering the silver market.

JP Morgan Acquiring American Silver Eagles?

Mr. O’Byrne cites respected veteran silver analyst Ted Butler’s contention that JP Morgan’s silver hoard is much larger, perhaps 350 million ounces and that JP Morgan is in a position to corner the silver market.

Earlier this year, Mr. Butler surmised that JP Morgan had been accumulating a large percentage of the record number of American Silver Eagles produced over the past few years. Given that the annual production of American Silver Eagles only represents a single digit percentage of the annual global silver mining production, acquiring large amounts of silver eagles would not be the most efficient way of cornering the silver market.

Further, buying millions of American Silver Eagles would not be a cost effective way of cornering the silver market. It is unlikely that JP Morgan would be acquiring small one ounce coins that the U.S. Mint sells at a $2 premium per coin (at $20 per ounce or lower such a premium would be in excess of 10% per ounce). Rather, JP Morgan would more likely buy “good delivery” large silver bars eligible for trading on COMEX. American Silver Eagles can not be traded on COMEX.

Is JP Morgan going to open a chain of retail coin shops to sell millions of American Silver Eagles at $150 each?

The probability that JP Morgan is attempting to corner the silver market is no more likely than the liklihood that COMEX is in danger of an “imminent” default– a prediction that has been bandied about for the better part of a decade.

JP Morgan’s increase in its silver stocks doesn’t necessarily mean they are trying to corner the silver market. An increase in their silver stock holding provides them with insurance against delivery requests on COMEX and gives them more leverage if they wish to increase their short position. In addition, some of the silver in JP Morgan’s depository belongs to clients, not JP Morgan.

The value of the silver market is small and if you believe the silver manipulation theories, JP Morgan can make more money selling paper silver futures contracts every day on COMEX than acquiring 800 million ounces of silver and then trying to sell it all on the market at a profit.

How Comex Works

COMEX is a place where traders without physical metal sell to traders who don’t want physical metal. That statement is a bit of an exaggeration. The value of the long and short futures contracts traded on COMEX, however, far exceed the amounts of physical metal that is available for delivery. COMEX is, in a sense, a fractional reserve metals trading system.

Silver contracts on COMEX are traded in 2,500 and 5,000 ounce increments. Silver must be .999 fine and stored with COMEX approved depositories of which JP Morgan is one. (see below for the amounts of silver held in some of the other approved COMEX depositories)

COMEX serves as a market primarily for traders looking for exposure to the price of silver, not for those looking to acquire physical silver. COMEX can be used by market participants to hedge their silver market risk or by traders to make profits by betting on the price action of silver. The largest traders on COMEX are the bullion banks themselves, some of which also act as approved COMEX depositories. Most silver contracts are rolled over or traded prior to their expiration and no delivery occurs.

Open Short Silver Positions on COMEX

Delivery requirements of open silver short positions by the largest traders may require amounts of silver that they do not have. JP Morgan’s increase in the amount of silver held in its depository make a non-delivery event less likely.

Open Long Silver Postitions on COMEX

Silver long positions, while smaller than short silver positions, are still outsized compared to the amount of physical silver available to fulfill aggregate delivery requirements.

COMEX Silver Deliveries

Despite the massive volume of silver futures contracts traded on COMEX, only a relatively small amount of physical silver is actually delivered.

Under 100 million ounces of silver were delivered on COMEX in 2014.

JP Morgan’s Participation in Comex

J.P. Morgan is one of the bullion banks that form the London Bullion Market Association that make a market in physical gold and silver. They include: Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorganChase, Merrill Lynch/Bank of America, Mitsui, Societe Generale, Bank of Nova Scotia and UBS. The LBMA in London is where the largest trades of physical gold and silver take place.

Buy Silver, Crash JP Morgan

Max Keiser astutely pointed out in 2010 that JP Morgan did not have enough silver in its depository to meet large requests for physical delivery in connection with their COMEX short positions. (see chart above) Mr. Keiser initiated a buy silver crash JP Morgan campaign on the theory that JP Morgan would not be able to cover their short positions.

JP Morgan’s addition of 55 million ounces of silver to its depository since 2011 make the inability to cover their short positions less likely.

Size of JP Morgan’s London Whale Fine

The total value of the record number of American Silver Eagles sold in 2014 was less than the amount of the fine that JP Morgan paid to settle the its London Whale case. The ill fated London Whale trade itself cost JP Morgan over $6 billion in losses.

JP Morgan paid more to settle its London Whale case than it would have cost to buy the entire 2014 mintage of American Silver Eagles.

JP Morgan’s Fines In Relation to the Silver Market

JP Morgan has paid a staggering amount of fines since 2011. Clearly, JP Morgan has the financial wherewithall to corner the silver market. According to the Forbes list of the world’s wealthiest persons, there are also seventy seven individuals, including Vladimir Putin (net worth $15 billion), whose net worth is large enought to buy an entire year’s global silver mining production).

Capability, however, doesn’t equate to intent. Cornering the silver market would not be worth the trouble, especially when there is easy money for JP Morgan and multi billionnaires to make easy money elsewhere.

The amount of fines that JP Morgan has paid to settle alledged wrongdoing dwarves the value of global annual silver mining prodution.

Other Bullion Banks Acting as Approved COMEX Deposotories and their Silver Stocks

Bullion banks HSBC and Scotia Mocatta act as COMEX depositories and also trade for their own accounts.

HSBC Bank

HSBC’s silver depository holdings have been cut almost in half over the past year. How much of JP Morgan’s newly acquired silver, if any came from HSBC’s stocks?

Scotia Mocatta

Scotia Mocatta’s silver stocks have fallen by about 2/3 over the past two years.

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Other Approved COMEX Silver Depositories And Their Silver Holdings

CNT Depository

CNT has massively increased its stock pile of silver.

Brinks

Silver held by Brinks has remained relatively constant over the past four years.

Delaware Depository

Delaware Deository silver stock have also remained relatively constant.

*Registered available for delivery
Eligible not available for delivery