J.P. Morgan is short more paper silver than physically exists in the world?

I believe Jim already mentioned this, but most places that offer paper metals don't have a physical metal payout. In fact, I can't think of a single one that does. They pay out in cash. I'd have to question the reasoning behind an investor who bought ETF's in the hopes of cashing out to physical metal when they could have just invested in physical to begin with and saved a fortune in fees.
Guy

 

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The problem here is that you can't just buy a short and hold for delivery UNLESS the contract was already marked for delivery which had to be paid at full price rather than at a marginable price or if the contract was still months ahead and you paid the difference when called for by the exchange . And once you shelled out full price for a CME delivery contract, your gain/loss would be determined by the movement of the commodity silver or gold itself.

But yes, many still think that they can buy a cash based instrument and ask for delivery whether SLV, GLD, a CME contract, etc. anytime they wish and with out coming up with the full cash price. I think that was part of MF Global where they had paper contracts and wanted to make them delivery, and they were missing the cash to do so in time, and the paper contracts went to expiration. Not sure, just conjecture from past practices

Jim
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I don't understand what you are saying. My understanding is this. GLD & SLV are totally different than the CME. I agree with you on GLD and SLV. There is no claim on the physical asset via shorting or other means. (though there might be an exception to this)

However at the CME a futures "option" for a physical commodity is an agreement to purchase a physical commodity on a specified delivery date for a given price when the option expires. If you are "short" you are the one selling and the one buying holds the "long" position. This is a different meaning that that of stocks. The seller, for obvious reasons, is expected to possess the physical commodity. When the option expires and assuming the buyer has not offset the option (most are offset) then the seller is legally obligated to provide the commodity by the delivery date. The buyer must pay the remainder of the option and contact the warehouse for delivery instructions. It's a perfectly valid way to purchase the physical metal and and a low premium. However most don't do this simply because the minimum gold contract is for 100 ounces and for silver either 1000 or 5000 ounces. i.e. it's out of most people's league.

(Some time ago a friend of mine who like to play the futures market lost track of a potato future(s) that he had purchased. He was quite surprised when he got a call from a guy with a train load of potatoes who wanted to know where they should go.)

A naked short is when the seller does not possess the physical commodity. Since most options are offset (settled for case before the option expires) then they get away with it. However if a large buyer demands the physical silver or gold then the seller can offer to buy them out for a significant premium over the going price. This is where the 130% that I mentioned above comes from. Of course you have to have the financing and balls of steel to play this game because as you mentioned, they could actually call your bluff and provide the metal. It's a great game for an organization for say, a bank, which has unlimited access to fiat but not much physical to back up the position.

The accusation being made by the OP is the banks will sell a ton of naked shorts near the silver options expiration date which can drive the price down a great deal. What this does is fleece all the longs who bought for higher prices. On the other hand, the big longs can ask for delivery and the banks either have to come up with the metal or do a payout. As I said its high stakes gambling stacked in favor of the banks so only very few can win at this game.

While most silver bullion buyers here, I suspect, are not involved with this activity, the price they are paying for silver comes from this activity. it's why they should understand what they are getting themselves into when they are purchasing silver for investment purposes. (And also to a lesser extent, gold)

 

Very interesting. I've learned quite a bit from this thread. I was more enthusiastic about my reaffirmation in physical silver beliefs, than I was in sensationalizing a possible scandal. On the other hand is it possible that JPM would also be using the heavy shorts to stockpile physical silver, in the event of a correction? How does Ft. Knox play into all of this? It holds more than just gold does it not?

 

Remember that the one shorting the substance is the selling the commodity. So JPM would not be using this method to acquire the physical PM. For them, if they are successful in driving down the price towards the end of the options expiration, then all the longs that bought from them earlier in the cycle have to pay above market rates for silver or offset their contract at a loss. JPM makes a lot of money. Lack of regulation makes it possible.

The gold in Ft. Knox is an asset of the United States. It's not bought or sold on any market. The value of this gold is however used to offset gold certificates held by the Federal Reserve as an asset against the base money supply. FDR made this swap with the Federal Reserve in return for the funding to pay for his programs in the 1930s. It should be noted, it's only valued at $42/ounce in lawful money.

 

No, the settlement of a CME Precious metal future option is listed as "financial", and generally means cash. The option description has it as the "cash difference" between the transaction pricing and the settlement pricing.
http://www.cmegroup.com/trading/metals/precious/gold_contractSpecs_options.html#prodType=STO

If you are buying the same as Gold future ( not options), the settlement is physical, but the cost/payment ) ( long/short) is the full determined price of the 100 Toz. You can trade it if the metal takes an upswing and make money, or sell after a down swing and lose, whereas with the options you can protect your position with straddles or other types of option spreads.

http://www.cmegroup.com/trading/metals/precious/gold_contract_specifications.html

The above is for CME members/associates, so common folks would be doing it through a broker associated with CME. With a margin account a person could use it to buy a future for delivery, but the brokerage will require that the price difference between the margin and the full price be in the account long before the CME expiration deadline, so they can forcibly close out the margin transaction if the customer wont pay. If they have correctly required collateral for the margin deal, they will be OK. Many handle the option in house until the full money comes in and then buys the CME future contract for the customer + charges.

If I was the owner of a very large jewelry supplier, I could be a member of the CME, buy options for long term hedging, and as I see my needs coming, buy a physical "future Delivery" contract or keep rolling over my option hedges. As an investor, options and cash delivery seem the best way.IMO.

Jim

 

This is information for creating a "PUT". This is a different situation than that which I described. I agree this is a totally cash position. Yes I did use the term option loosely

 

I've heard the speculative argument that the reason behind any supposed price suppression is so that a few big players can get their positions locked in at cheaper prices before everybody goes long. JPM can always get more money from the Fed if they need it, but only JPM is the steward of COMEX silver and has the ability to move pieces for both players on the silver chessboard. I don't think it's as cut and dry as they wouldn't go long because they are short, because the impact is much more far reaching, and they don't have to worry about making bad bets. If someone were to be naked shorting with fluff and then buying up physical, well that's pretty shrewd if you ask me.

 

Anyone catch the piece on 60 minutes regarding the mortgage fraud and lack of prosecution of anyone from wall street by DoJ or SEC, it is funny how they seem to be no problem chasing mom and pop buisnesses' but are afraid of using Sarbanes Oxley against the big boys.

 

I am all for prosecuting any firm that breaks the law, but feel Sarbanes Oxley is a bad example. All this law did was employ more accountants, and make out firms more uncompetitive. I think stiffer penalties for existing shenanigans, and stopping plea bargains, and locking these guy up in REAL prisons, not the Federal country clubs, would do more than this law has done. All Sarbanes Oxley does is make the CEO say he agrees with the P&L issued, something I would think would already be implied, but some slippery lawyers have been arguing CEO's were out of touch therefor not responsible for these lies.

 

Wish I would have caught that episode.

I believe it started to go south with the GLBA (Graham-Leech-Bliley-ACT). This essentially deregulated banks, and made it legal for banking systems to gamble with your money. J.P. Morgan has been tied to scandals since the days of John D Rockefeller. Just Google “J.P. Morgan scandals," or “J.P. Morgan scandals involving the fed." You will come up with over 350,000 results. With the GLBA in place, and the repeal of any strong standing regulation (Glass-Steagall Act of 1933) the banks went to town with our money. They lobbied for the GBLA, accepted $49 million dollars from Enron, and were heavily involved in pushing the CRA + sub-prime loans. Obviously they are a banking system, and by nature would have a hand in these transactions, but given their past do you really think that it is out of the realm of possibility that they are involved in silver manipulation? We are the ones on silver bullion investing forums, and only a few of us (not me) are in tune with the crux of the situation. Do we actually know what the bank’s balance sheets are at? Why wouldn't the fed be motivated to assist J.P. Morgan in the silver market? At the bare minimum we would have to bail them out again if they can't make books. How about the Solyndra scandal? Why would the fed push so hard on solar panel manufacturing? (Billions and Billions of dollars). I know for a fact that general electric hand a hand in Solyndra. What about J.P. Morgan? Obviously we would want to keep production prices as low as possible, and it is no secret that solar panels contain silver. I don't mean to go into a rant, but it gets my brain thinking. I am trying to be rational about this, but I wouldn't be surprised if we discover the wizard of oz in the next 10 years.

 

Well not sure if you saw the piece by the argument used by Steve Kroft was there is solid evidence to go after the institutions atleast using Sarbanes Oxley, since CEO of Country Wide and Vikram Pandit of Citi signed off on statements and assured everyone there was nothing wrong even though whistle blowers contacted them weeks earlier regarding sub prime loans. DoJ didn't even interview those whistle blowers and has spent tens of millions and achieved little to nothing.

 

Ahhh the decline of morality. The study of the rise and fall of the Roman Empire should be mandatory in all schools.

 

My gut tells me that you are on the right track, but without evidence it's just spinning the wheels. If the silver market is undervalued the best thing we can do is focus on the facts that we do have about why silver is in fact a good thing to have, and accelerate the prominence of physical supply and demand over paper by getting more people into the market. China is doing it, and we are behind the curve. The coming wealth redistribution will be kinder to those with precious metals.

 

Who's clients are they? I guess what I am asking is JP Morgan's 3.3 billion short their net position?

 

I don't think JPM publishes their trading positions. Where does the 3.3billion short number come from?

 

On the earlier discussion on prosecution, the most blatant example is this. Why hasn't Eric Holder started any criminal investigations on MF Global? Billions disappeared and common people out money. These people are destroying any faith that the system plays fair and anyone who has investments that depends upon it should take care to examine their positions.

 

From the OP.
It is titled
"J.P. Morgan is short more paper silver than physically exists in the world?"

 

http://online.wsj.com/article/SB10001424052970203699404577042510797468138.html

Criminal investigations are ongoing. It's probably a matter of jurisdiction. Something this complex will take time.