The Key Test Ahead – Ted Butler


by Ted Butler, Silverseek:

Before getting into the subject of today’s title, allow me to update a couple of topics previously discussed. Last Wednesday, I offered a review of world silver inventories in which I concluded that there were roughly one billion oz in fully documented inventories of metal in industry standard 1000 oz bars and perhaps another 500 million to one billion additional oz in unverified holdings; making a grand total of 1.5 to 2 billion oz for world silver inventories in, essentially, the only form that matters.

I went on to claim that JPMorgan owned a total of 600 million oz of that silver, including just over 100 million oz in its COMEX warehouse and 500 million in unverified holdings. In essence, I was claiming that JPMorgan held either all of the world’s unverified silver inventories or that there might be another 500 million oz out there that JPM didn’t own. I know this is a pretty outrageous claim, but I study this stuff closely and it is my firm conclusion that JPMorgan holds between 30{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} to 40{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of all the 1000 oz bars in the world.  Most outrageous of all, of course, is that JPMorgan bought all this silver over the past six years as it depressed the price by virtue of it also being the largest paper short seller on the COMEX.

When I wrote last week’s article, I knew full well that the LBMA was about to publish, for the first time ever, the quantities of gold and silver bullion held in London. To be frank, one reason I wrote the inventory article was to preempt the LBMA, because I was sure they would overstate world silver inventories. In the interest of full disclosure, please know that in terms of transparency and reasonable verification of its published statistics, I hold the LBMA in the lowest possible regard –almost to the point of disregarding everything they claim. I had every expectation that the LBMA would report that many billions of silver ounces resided in their affiliated vaults.

Therefore, it came as quite a bit of a shock to read that the LBMA reported that it held “only” one billion oz of silver, since it was much less than I would have expected it to report.  I’m not going to get into the amount of gold (240 million oz) that the LBMA claims to have in its vaults, for the simple reason that no one argues that there isn’t roughly 5.6 billion oz of gold in all forms throughout the world and the amount said to be in the LBMA is less than 5{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of the total gold in the world (even though it’s the second largest gold holding in the world, behind the US Government’s holdings). A key point I tried to make last Wednesday was that individual gold stockpiles were less critical because there was no dispute about how much total gold existed. There could be (and is) endless discussion about who really owns the world’s gold, but not that it exists in reasonably-known quantities.

It’s much different in silver than it is in gold because there is great question about how much silver exists in the world. That’s because we know that silver is a vital industrial commodity consumed in an incredibly wide variety of applications and because of that consumption, world silver inventories have been massively depleted – by 90{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} over the past 50 to 75 years. Therefore I was relieved that the LBMA published silver numbers that in no way disagreed with my take last week that there might be 500 million to one billion oz of silver in 1000 oz bar form in London in previously unverified holdings.

I would have let the matter slide and not even have brought it up today had I not received an email this morning from a subscriber who is a money manager in Switzerland.  He included a private report from UBS to clients (that I cannot provide to you), but upon further investigation, I noticed that there was a separate link to a similar UBS report contained in the official LBMA link provided above. Here is that separate link –

The bottom line is this – according to UBS, included in the one billion oz of silver the LBMA claims to be in London are the ETF holdings in London in SLV and SIVR, amounting to more than 400 million oz. Since I already included these holdings in the verified category of silver holdings, this amount must be subtracted from the LBMA’s count; meaning that ex-ETF holdings, there are only 600 million oz of newly reported silver in London, much closer to the lowest number ofmy 500 million to one billion oz estimate.

So, instead of the LBMA reporting billions of ounces of silver in previously unverified holdings, it is reporting only 600 million oz when all is said and done. You could have knocked me over with a feather on this news. And you can bet that JPMorgan owns nearly all of this newly reported silver.  As you know, I no longer seek out new bullish surprises in silver, fearing my brain will explode if I add just one more. But despite my fears, the small amount of silver just reported by the LBMA, even without the mandatory reduction of ETF holdings, is really messing with my mind because it’s so bullish.

The other matter previously discussed involves the old issue of futures market positioning setting prices, not just in gold and silver, but other commodities as well. Just this week, for example, the price of copper rose to new two-year highs. I have written about the price of copper being depressed due to aggressive selling by the managed money technical funds on the COMEX, both late last year and as recently as May. Recent COT reports have indicated that the managed money technical funds have flipped completely to the long side and now hold their largest COMEX (gross) long position in history.

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