all that glitters is silver

read an interesting article on Zerohedge.com by Eric Sprott this morning ('All that Glitters is Silver') that sets-out some fundamental problems faced by those holding short positions on the COMEX, and how the Commodity Futures Trading Commission (CFTC) together with (I assume) the SEC are investigating the conduct of JPM and HSBC - the article can be found here: http://www.zerohedge.com/article/eric-sprotts-double-barreled-silver-issue

Reference is made in the article to the class action lawsuits underway against JPM and HSBC - a copy of the Complaint can be found here: http://www.kaplanfox.com/news/421-silverfuturescomplaint.html

Now all of the above and everything else that has been written and asserted on this futures trading scandal, (least of all by Max Kaiser), has had me antsy about whether I should pile into some purchases of physical silver - so in the process of conducting some further research I decided to jump into the CFTC website to take a look at some of the trading figures over 2010 - below is my take on a small portion of the available date...

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It is worth spending some time looking at the data on the Commodity Futures Trading Commission (CFTC) website, spcifically the end of month reports on the Futures Market.


I noted all the % monthly changes in long and short positions for both Non-Commercial and Commercial Traders.


Non-Commercial Traders (NCTs) are defined as those who "do not own the underlying asset or its financial equivalent; they hold only positions in futures (or options) contracts." - correct me if I am wrong, but JPM and HSBC would be NCTs.


Commercial Traders (CTs) are defined as those who " hold positions in both the underlying commodity and in the futures (or options) contracts on that commodity", and "who use futures or option contracts in a given commodity for hedging purposes, as defined in CFTC regulations." - this group would therefore have a lot of PM producers and those who actually deal in the physical metal, like a bullion dealer.


Now insofar as Silver is concerned, the CFTC data shows the following for 2010:-


a) Using January as 100 - through to the end of November 2010, the net LONG positions of CTs INCREASED by 2.7%

--- through to the end of November 2010, the net SHORT position of CTs DECREASED by 5%.


b) Using January as 100 - through to the end of November 2010, the net LONG positions of NCTs (JPM&HSBC et al) INCREASED 36%

--- through to the end of November 2010, the net SHORT position of NCTs (JPM&HSBC et al) INCREASED 49%


((NB: I looked at the data of end-of-month positions for 10 months to the end of November. One interesting stat I have not yet been able to reconcile is that for the entire period, the end-of-month net position for CTs was always SHORT, and the end-of-month net position for NCTs was always LONG - whether much position changing occured in the final days of each month to always maintain these net positions I do not know, but they clearly appear (intuitively) to be at odds with the entire net growth/decline position after 10 months of data, especially for the NCTs - so I invite comment on this issue - but perhaps the easiest conclusion is the best namely, the NCTs have always maintained net LONG positions, because knowing the market has been purposefully held down, then one day it could only 'pop' to where it should, therefore the NCTs have also been holding the opposite side to their efforts at SHORTING, awaiting the day the SHORTS stop piling back in, thereby making a killing on their LONG positions in the process - but who really knows at the moment - though I am reminded of how GS were revealed to have betted on the failure of so many of the mortgage backed products they flogged to unsuspecting buyers...))


Some quick observations and conclusions:

a) NCTs are playing the COMEX hard in Silver, clearly throwing a lot more cash behind a lot more short and long contracts than CTs.

b) Despite the Nalven lawsuit brought against JPM and HSBC, NCTs are still piling on the SHORT positions, having in fact increased their net SHORT positions as a group since the lawsuit was filed.

c) The Nalven lawsuit against JPM & HSBC was filed on 2 November 2010 - at paragraph 43 of the Complaint it states, in effect, that 'as of 19 October 2010, less than four market players hold 24.3% of all SHORT bets in the Silver market, where JPM and HSBC are among those participants.'

d) Sprott in his November article (All that Glitters is Silver) states that there are approximately 684 million ounces of Silver available for sale -- he then states that 'open interest' Silver contracts on COMEX represent approximately 871 million ounces of Silver -- therefore Sprott is suggesting a shortfall of some 187 million ounces that would go un-covered were physical delivery called for.

e) Now when you look at c) and d) above, and being very 'back of the envelope', we can conclude that in nominal (approximate) terms, that collectively JPM & HSBC are on the hook for about 212 million of those 'open interest' ounces of Silver -- a dollar figure for that quantity is about $5.9 billion bucks.

f) Now in light of the shortfall of 187 million ounces, and there being no immediately available information to suggest that either JPM and/or HSBC are in fact holding anything like 212 million ounces of Silver, then even if it turns out they own a little bit of that Silver, there nonetheless remains a few BILLION dollars that may be in need of covering - to which I say OUCH!


I'll let the rest of you to come up with further observations and conclusions.


Good luck