Victory! Silver Heading to $475 Trillion an Ounce

Yeah - it is - I did the math. In a spreadsheet and everything.  Let me explain.

The Financial Times wrote an article speculating that JP Morgan has been reducing its silver short position.

"JPMorgan has quietly reduced a large position in the US silver futures market which had been at the centre of a controversy about its impact on global prices for the precious metal.

The decision by JPMorgan was an attempt to deflect public criticism of the bank’s dealings in silver, a person familiar with the matter said. The person added that the bank’s position in silver would from now on be “materially smaller” than in the past."

This, of course, led ZeroHedge to claim victory, "proving" their conspiracy theory correct

So you'll read the FT article, and you'll find:

"JPMorgan said in a statement: “It is absolutely incorrect to say or imply that the Nymex, CFTC or any other exchange or regulator has instructed or asked us to reduce our position.” The bank declined to comment on whether it had reduced its position in the silver market."

Ok - so, maybe we were a little early with that VICTORY!  But Johnny Drama was too compelling an embed to ignore.  It turns out that JPM itself gave no comment, except that they were not asked by a regulator or exchange to reduce their positions.  They didn't say that they reduced the positions. - that was speculation - and I certainly cannot prove that GATA was "the person familiar with the matter" in the FT article.  Of course, we all know that doesn't meant that JP Morgan didn't reduce their positions - let's just assume they did.  How much did they reduce it by (guestimating)?

I thank an anonymous commenter on the previous thread who points out that CFTC's December Bank Participation report shows a decrease of futures shorts in the US Bank category for the Nov 2nd to Dec 7th period from 30,760 contracts to 26,332 contracts.  Each contract is for 5k ounces, so this represents roughly 22 million ounces of silver.

We also know that over that same time period, the price of silver rose roughly 25%.  Thus, since "it has become clear" that JP Morgan is sitting on a 3.3B ounce silver short, it's a matter of simple math to figure out where the price of silver is going.  3B ounces / 22mm ounces = 136 (I rounded down to 3B just to be conservative!).   Since every 22mm ounces moves the price of silver higher by 25% (again, conservatively - it actually may get parabolic as supply tightens), if we start at $29/oz, and do the math $29 x {(1.25) ^ 136}, we can clearly see that the end result is $475 TRILLION by the time JP Morgan's risk position is flat (Again, rounded down to be conservative). 

VICTORYYYYYYY!  We're all gonna be rich!  Those imperialist bastards at JP Morgan will surely pay for their sins now!

Oh no - wait - I just got the idea to refine the data by looking at the CFTC's options report too.  The difference between the Nov and Dec reports shows that the options positions held by US Banks in silver changed as follows (changes in positions):

Long calls: -224
Short calls: +979
Long puts: +386
Short puts: -910

All of these transactions have the same directional delta - they all act to increase the short position held by US Banks, by a total of 2499 contracts.  In the interest of thoroughness, I'd better back that out from my 4428 short futures decrease, and adjust the net change in short exposure to 1929 contracts, or 9.645mm ounces.  Actually folks, don't panic, this is GOOD news - it means that my $475 Trillion target price for silver was WAY too low!  Let's check the new math:  3B / 9.645mm  = 311.  $29 x {(1.25) ^311}, rounding down, is 40 with THIRTY zeroes after it. 

$40,316,364,189,638,100,000,000,000,000,000

Some research tells me that this is 40.3 nonillion dollars.

I'll be honest, I don't think that silver will get that high, so I'm going to stick with my $475Trillion/ounce original math.

-KD

note:  This post is pure sarcasm (although all quotes are real).  If you like the math I did here, well then, you're an idiot.  But this unsubstantiated hype train is just so much fun.

also, there are some important caveats for the conspiracy theorist in the FT.com article, such as: 

"In two previous reviews of the silver market, the CFTC has dismissed claims of manipulation. Most analysts say there is little reason to believe the price of silver is being systematically manipulated."

and:

"Analysts and traders said that JPMorgan’s large short positions on New York’s Comex exchange, a division of Nymex, were hedges for the bank’s long positions in physical silver and London’s over-the-counter market."

To summarize, "a person familiar with the matter" says that JPM is decreasing its short position to deflect public criticism, and analysts and traders say that there is little reason to believe the manipulation hype, and that JPMorgan's COMEX shorts are hedges for their other exposure. NO! Impossible! (see, that was more sarcasm!).

disclosure:  long SLV