-- Posted 5 January, 2011 | | Discuss This Article - Comments:

As January and the new year kick off to a fast start, we shouldn't be so quick to forget about 2010, especially the events of December 2010.   A number of very important news releases will set the stage for the silver markets in 2011, and interestingly enough, one company, JP Morgan, is featured in each.

#1 Morgan and Copper

In early December, it was discovered that JP Morgan may be behind the buying frenzy copper markets, just as it is believed the bank is massively short in the silver markets.  For many, copper presents an opportunity to buy into a groundswell of real copper demand amid low interest rates, emerging market growth, and an expected decline in copper output.

Some analysts, however, see it differently, and instead believe the combination of long copper and short silver is essentially a long-term, double short on silver.  Silver, of course, is a by-product of copper mining, often brought out of the ground in search of new copper reserves.  When mining companies see higher copper prices, they're more likely to seek new copper, and in the process, find more silver.  But that's just the start to December's wild headlines.

#2 JP Morgan's Suspect Denial

A spokesperson for JP Morgan denied that the firm owned 80-90% of the copper positions in London, but would not comment on whether it held positions smaller than 80-90%.  Thus, it can be concluded, as many already have, that JP Morgan owns 1% less than the 80-90% range.

The Financial Times later printed an article from a JP Morgan employee who claimed the company was reducing its massive silver short position and that the position would later be “materially smaller.”  Regardless of the admission or lack thereof, a smaller silver position for JP Morgan in silver means a much higher outlook for silver prices.

#3 Suit Filed Against JP Morgan for Manipulation

A Michigan law firm filed a class action lawsuit against JP Morgan and HSBC, two banks that have been suspected in silver manipulation.  As many may or may not be aware, JP Morgan is the custodian of the popular iShares Silver Trust (SLV), an exchange-traded fund that is supposed to be backed by real, tangible silver bars.  HSBC is the custodian of the smaller ETFSecurities Fund (SIVR), another fund said to be backed by physical metals.

The suit isn't interesting by itself.  After all, a great deal of lawsuits are filed every day.  However, this suit, should it proceed to court, will require, at a minimum, an audit of JP Morgan and HSBC vaults.  Such an audit is the only way to determine if JP Morgan and HSBC are involved in manipulation and that they are performing to the contract of each fund. 

Plus, as with any public dispute, this case will have to be solved in public.  Here's to hoping no one takes a settlement!

Get Ready

Whether JP Morgan is found to be guilty of manipulating the markets or not, one thing is certain: silver prices are going higher.  “Materially smaller” silver shorts (they can't afford them much longer, can they?) brings even more upside for silver as each closed short is erased with an opposite “buy-to-cover” order. 

Dr. Jeffrey Lewis

www.silver-coin-investor.com