Citer:
For only the third time in five years I am issuing a mid-week ALERT. I reserve something like this to report important events in the Precious Metals market. Today, such an event occurred in my opinion. Late last night, Silver took a sudden and unexpected nosedive from $19.08 down to $18.80. I say unexpected because Silver has been so strong lately. I woke up this morning thinking we could be looking at a real bloodbath today. Much to my surprise, I was shocked and delighted to see Silver’s price rise from $18.80 all the way up to $19.33! What happened?
Bloomberg reported this morning, that J. P. Morgan, the largest short seller of Silver in the world, said today that they will be shutting down their proprietary commodity trading operations in response to the Volcker Rule in the Financial Reform legislation.
The JPM proprietary commodity trading group is headquartered in London with a few traders located in New York.
Employees are being told that they may apply for other positions now.
Speculation is that this is also in response to position limits and other reforms in the Commodity Markets spearheaded by Commissioner Bart Chilton which will make it more difficult for large players to dominate the short term markets through sheer position size. In addition, this operation has suffered considerable losses as Gold and Silver prices continued their upward trends. This provoked a high level review by top executives. It is not clear if JPM will be exiting all markets at the same time including gold and silver in addition to other commodities.
We will look for clarification from their official statement which has not yet been issued.
The fact is JP Morgan holds more than 40% of the total shorts in the Silver market. At last check, this amounted to over 200,000,000 ozs of silver that must be covered. This could develop into the greatest short squeeze of all time!
As a result, it seems to me that there may be real stress in the wholesale physical silver market. I’ve been writing about this before today’s announcement. All the factors I look at, including flows into ETFs, the shorting of SLV, the decline in COMEX silver inventories, the strong retail and institutional investment demand in silver, the now growing world industrial demand, etc., suggest tightness and the potential for a silver shortage like never before. In fact, recently I have hinted that the short manipulation in the precious metals may come to an end soon. Today’s announcement could certainly enhance that timetable.
This means that when the silver shortage hits, the price will explode. On this, there is no question. Industrial users, at the very first sign of delay in silver shipments, will immediately buy or try to buy more silver than they normally buy, in order to protect against future operation-interrupting delays. This is just human nature. The world has never experienced a true silver shortage ever, so the price impact is clearly unknown. I’ll try not to overstate how high I think the price will go in a true silver shortage and how quickly it will occur, so that I don’t sound too extreme. But the price move will give new meaning to “high” and “fast.” I see Silver possibly reaching $60 - $75 per oz at sometime in the future.
None of this means Silver will go up 10% tomorrow. Be smart. Watch developments closely. I’ll do my best every week to provide you with my opinion. I’ve waited a long time for Silver and Gold price suppression schemes to end. We are a big step closer to that tonight.
source : Lettre hebdomadaire de Michael Pennington Gérant d'une société de négoce d'argent
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