20 April 2012

Comex Silver Inventory Watch - Heading Into May-July Delivery Period

The long term decline in deliverable supply at this price level could become quite interesting.

The only ways to obtain more deliverable inventory to meet a bulge in demand is to game the rules on the ability to take physical delivery or let the price rise by buying on the open market.    

The push by the CFTC for position limits may tighten the ability to take delivery from 1,500 to 1,000 contracts, but hedgers will be exempt from position limits on the short side.  And the big silver short JPM claims to be a hedger.

I keep hearing stories of negotiated prices above the public quotes to buy off large delivery claims.  I would be interested to know if anyone has proof of this.  We know there are large agreements being conducted around the publicly quoted prices all the time. The FX pit traders walked out in protest over a recent occurrence.  It does not take an economist to understand what this does to price discovery and market efficiency.

The estimates I have seen of how much silver is real and how much is conflicting paper claims (leverage of unallocated claims) is up to 100:1.   Some of those claims are reported to be covered by 'inventory in the ground' which is not readily available for delivery.

One can only wonder how well confidence in the Comex would receive another 'stolen assets' scandal like the confiscation of gold and silver that happened to customers of MF Global.

The central banks have long ago dispersed their caches of silver to the market, so they are not available to supply ready inventory at leased rates.   One might look to SLV and wonder who audits its custodial integrity of unencumbered physical bars and how often.  

As I recall the sponsor of the ETF is Blackrock, but the custodian and keeper of the vault holding the physical silver backing the ETF is JP Morgan.  As you may recall, JPM is holding a massive short position on the silver futures, as best we can determine. 

JPM claims they are a hedge on behalf of other parties.   If they are using the SLV inventory as collateral in any way, then someone needs to be paid a visit by the SEC and CFTC because the owners of the shares have a superior claim to the metal.   That smells like 'hypothecation' in the manner of MF Global.  But I suspect that rather than blaming Edith O'Brien one might blame Bear Stearns.

I am not saying this is 'illegal' but it certainly warrants disclosure if it is occurring.  And if the CFTC knows this and is sitting on the information in their four year old and still unreleased silver manipulation report, then Gary Gensler needs to appear before the Congress and answer some very tough questions about conflicts of interest and withholding of key market information.

Of course the prudential time to ask those questions and obtain the answers is now, and not after the carnage of a commercial failure devastates investors, global industry, and market confidence.

Will anyone listen to this?   Did anyone listen to Harry Markopolos before Madoff's fund blew up?

These days it seems like the US financial markets are a train wreck happening in slow motion.  Or almost like watching a B horror movie.  You hear the music and you know what's coming, but there is no way to warn the campers.

'Our rivals are scared shitless of us.'   Blythe Masters

How Jason P. Morgan sees itself in the markets  lol