Silver price up as JP Morgan cuts short position and backwardisation rules
Posted on 14 December 2010 with 4 comments from readers
Silver market experts have long pointed to the massive short position held by several major banks as the prime reason for the metal being underpriced and the only commodity still trading below its all-time high of thirty years ago.
But the headlines in the Financial Times today announced that JP Morgan has ‘materially reduced’ its position in silver to counter these allegations which it denies. It is perhaps no coincidence that silver is up 70 per cent since August.
Backwardization
At the same time the silver market is in backwardization, that is to say silver for immediate delivery is priced more highly than silver for future delivery. That is generally what you see when a market is tight with not enough supply to meet immediate delivery, so you get a better deal if you can afford to wait a while.
Both factors are mega-bullish for the silver price. The fraudulent manipulation of the silver price is over, and the artificial block to very much higher prices removed.
The price spike that has emerged since last summer when banks began covering their short positions is set to go higher. As ArabianMoney has previously argued to break $50 early in the New Year is perfectly possible.
That would take out the old all-time high of 1980. Normally after such a spike a correction follows because the buyers eventually run out, and this rocket fuel is exhausted.
Moving much higher
However, as we discussed in detail in the December edition of the ArabianMoney newsletter (click here to subscribe and we will also send you the December issue) there is still a great deal of life left in the precious metals bull market, and any set back will only be temporary.
ArabianMoney is one of 65 global forecasters predicting $5,000 gold within two years and the forecast ramp up for silver to $320 an ounce offers an even higher rate of appreciation.
4 Comments posted by readers:
I laughed when I read your estimate for the price of gold and silver in only 2 years. Then I read Mr. Pritchard’s latest comment at http://www.telegraph.co.uk/finance/comment . Now, I’m not so sure you are wrong. The euro falls apart, and who knows what might happen with all those derivatives out there in financeland. And a lot of experts over here in the USA are saying that real estate has further to fall. About 23% of all US mortgages are now underwater. I think the Federal deficit just set another monthly record.
Is that one beautiful engraving on that US silver coin, or what! To me, it is the most beautiful coin ever struck. If the US mint did those in giant gold coins, they could sell them to the very wealthy at a nice premium over the gold price. Would one giant gold one look cool on your desk or what! I am about as far from a spendthrift as a person can get, but I might even buy one to put on the fireplace. The burglars would sure like them.
If gold & silver went that high, just think what oil will cost! I will be able to sell my gasoline ration at a huge profit.
Nice commentary, Peter.
However, I’m not convinced that a totally corrupt bank such as JPM will “mend their ways.” Fraud, manipulation, corruption, and cover-up are their game, and that’s all they know how to do. Reminds me of guys who made a good living by stealing big time, then going to jail after they were caught. So when those guys get out of jail, do they ever seek honest labor? Perhaps 1% or 2% of them.
These JPM crooks have been making hundreds of millions of dollars every
month by this manipulation game; now we’re supposed to believe JPM
just because they said: “ain’t gonna do that” no mo.
Yeah, right.
16 December Update:
What I find absolutely fascinating is the fact that, over the past 4 days, JPM moved back into their ol’ fraud and price manipulation game in a big way, as it pertains to the commodities markets. This is especially true in regard to the silver market.
JPM’s “price manipulation” fingerprints are all over the place; especially when one studies the price action in silver on 15 December from 2:00PM to 4:00PM New York time. In reality, they never really “stopped”.
Methinks JPM’s PR Campaign proclaiming “We won’t do that no mo . . . “ was a huge success (at least for now!).
” Factors are mega-bullish for the silver price”He,he SILVER $320/OZ ?
Oh yeah, like Oil price in July/2008?
Production cost for Silver is between $3-$5/oz.
I’m waiting for USA,Canada to increase production like 2002 for additional 640 metric Tones of Silver and many European mining companies from Bulgaria,Poland,Russia,Greece,Sweden,Kazahstan to
increase production about additional 800 metric tones in 2011,2012.
PLUS possible INCREASE of productions in Australia,Japan,Moroco,India,S.Africa etc. for additional 1,000 metric tones of Silver.
Well next two years will see about 10% increase of production and Silver is alredy in bubble teritory because Gold production cost is $450-$700/oz or avg. ratio 1: 2.5,
and Silver avg.ratio is 1:7.5 production cost.
He,he SILVER $320/OZ is possible only if $US will be replaced with new world currency AND will going back again to monetary golden standards.
Than gold should be $55,000 to $60,000/oz. JP Morgan has currently short possitions of Silver and they are selling the contracts to stupid hedge funds.
Well maybe will see pressure till January/Feb. 2011 BUT the game is over for Silver in 2011.
When China,Mongolia production cost is $3/oz, and many latinos mines production cost is $4/oz and USA,Europe,Canada about $5/oz, than WHO is so STUPID to pay almost 70 to 100 times more than production price($320/oz). Oh yeah High demand,well the last 2 weeks demand is much,much weaker and will see in 2011,2012.