JPMorgan Short Exposure - 4 to 10 times Annual World Silver & Gold Production

[gunDriller]

I was looking through Harvey Organ's post CFTC hearings Blog to learn more about the markets and found this jewel about the total short exposure of JPMorgan, and secondarily HSBC.

This is where he talks about his testimony at the hearings, from his March 27 Blog. The hearings were March 25.


"I basically took the CFTC's own data with the Banking Participation Report and the huge BIS data in Nov 2009 to illustrate the huge short position of 2 major banks in silver

JPMorgan and HSBC and in gold, 3 banks but JPMorgan has the bulk of shorts in this one as well. I highlighted the OCC report in the usa which shows that JPMorgan has over 82% of the derivative risk in the USA. The BIS report which only shows risks to the banks they monitor, showed that in silver, the increase in short position by the banks in the G 10 increased in oz eqivalent to 4 yrs annual production of silver. The entire short position ( measured by the forwards) represents 10 yrs annual production."


A description of the market manipulation technique -

"At all times the signal is done in the very early trading in Asia by a set number of contracts followed by a secondary buy of a set number of contracts. This sets the raid in motion."

http://harveyorgan.blogspot.com/2010_03_21_archive.html


So, this leaves me with a question - why doesn't somebody call the bluff of the massive shorts ?

World silver production @ 20,000 tons, $300 a pound, $600K a ton (approx.), $12 Billion.

World gold production @ 2500 tons, $8 Billion for 200 tons (from the 2009 India central bank gold purchase), $100 Billion for 2500 tons of gold, approx.


Isn't the short position basically an offer to sell the physical metal at the lower price ?

I would think that a counterparty with deep pockets and no concern about the value of the US dollar could invest $100 or $200 Billion and demand delivery, which I think would drive up the price.

So they'd be getting the metal for a discount, compared to where the price ended up after JPMorgan bought it.

Anyway, I wonder what stops the big traders - someone like George Soros maybe. He borrowed a few billion when he detected the English banks shortage of dollars and traded in so many pounds he forced them to break the dollar-pound peg - and that was about 20 years ago. $5 Billion then is like $200 Billion now.

Is there something that stops the big metal-trader speculators from calling JPMorgan's bluff ? OK so one of my assumptions was that it would be profitable but would require deep pockets.

How could it not be profitable ... unless the buyer is afraid their gold will somehow be confiscated.

[Ragnarok]

I think what stops them is that there is no physical metal, or not enough, that can be delivered into the contracts by the short-holders - and everyone who is anyone with enough money knows it. There might also be a concern about getting a call from some gov't security agency or such a la Bunker Hunt. Who can afford the gold/silver plus that kind of hassle?

2c, R.

[gunDriller]

OK, thanks !

i think of this shorting activity as a huge gift to serious buyers of PM's. they lower the price about 20% in the case of silver, thinking of Feb. 2010. for people who had the funds, it created a great opportunity to back up the truck.

it makes me wonder - what is the practical limit on how much metal traders can buy, if they have the money to call all of the shorts' bluffs ?

maybe it's just written into the contract, JPMorgan or their agent can force cash settlement, instead of physical delivery. and they can probably squirm out of it somehow, just like Morgan Stanley did with their $4.4 Million settlement in 2007 ... for charging customers storage fees for non-existent metal.


but it still seems like the shorts have a huge risk exposure.

my guess is, the JPMorgan-compatible traders don't care, they just like the huge paychecks that come with the job.

there was some exec that talked about this on one of the recent King World or Financial Sense webcasts. basically about how Goldman became trader-dominated and 100% un-ethical, so that the Goldman traders (traitors ?) didn't care if the company went down.

i wonder what agreements exist to backstop this arrangement. written agreements between JPMorgan and the US Government and the Federal Reserve and the US Treasury, which we would probably not be allowed access to for reasons of national security.


whenever there's a crime to hide, they invoke "national security".

i notice a trend ! 8)

[Sparky]

...
Isn't the short position basically an offer to sell the physical metal at the lower price ?
...

A short position is an offer to sell borrowed silver/gold at the current price, and then replace the borrowed silver/gold in the future. A naked short is when you sell something at the current price that you haven't actually borrowed yet, but are claiming you could acquire upon demand. Having enough money to call the bluff isn't enough, unless you can force physical delivery, which is apparently hard to do. The more money you have to call their bluff, the more naked shorts they will sell.