Home > Silver Manipulation: The iShares Silver ETF And J.P. Morgan’s Conflict Of Interest? (SLV, PSLV, AGQ, ZSL, GLD)
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Silver Manipulation: The iShares Silver ETF And J.P. Morgan’s Conflict Of Interest? (SLV, PSLV, AGQ, ZSL, GLD)

October 26th, 2011

Jeff Nielson: JP Morgan (NYSE:JPM) is the largest silver short-seller in the history of the world. JP Morgan is the “custodian” for the largest “long” silver fund in the history of the world, making this one of the largest conflicts of interest in all of history.

If the unit-holders of the iShares Silver Trust (NYSE:SLV) make a small amount of profit on their holdings (per unit), JP Morgan suffers massive losses on its “short” position in the futures market – and then at least one hundred times that amount of additional losses on its unimaginably huge, leveraged, silver derivatives. We know this thanks to the loquacious banker, Jeffrey Christian, formerly of Goldman Sachs and now head of the CPM Group, one of two “consultancies” who are quasi-official record-keepers for the gold and silver markets. Obviously JP Morgan has a gigantic personal incentive to try to make sure that holders of SLV units make as little as possible on their investment.

This alone should disqualify JP Morgan from serving as “custodian” for all of the silver JP Morgan supposedly holds on behalf of those unit-holders. Amazingly, with JP Morgan claiming to be sitting on the two largest, single silver-holdings in all the world it has never been required to have both of those holdings audited/verified. Thus JP Morgan has been able to indulge in this blatant conflict of interest while so-called “regulators” actually help it to conceal its activities.


However, the absurdity of allowing the world’s largest “silver fox” to guard the world’s largest “silver henhouse” with absolutely no public scrutiny is only the beginning of this outrage. Those who follow the silver market will have noted an amazing “coincidence” in recent years since the creation of SLV: JP Morgan’s massive short position always closely mirrors the size of the total holdings of SLV.

This led me immediately to a rather obvious conclusion. Each time someone purchases a unit of SLV, JP Morgan uses the proceeds to acquire that one ounce of silver (as it is supposed to do). However, instead of that silver being used to “back” that unit of SLV (in JP Morgan’s role as “custodian”), JP Morgan increases its short position by one more ounce – and then uses the new silver to back its own short position (in JP Morgan’s role as “greedy banker”).

Note that as long as the supposed “regulator” of the silver market (the CFTC) never requires JP Morgan to demonstrate that it has enough silver to “back” both its own, massive short position and its own, massive custodian obligation, then there is nothing stopping JP Morgan from permanently/perpetually using the “long” investors of SLV to fund and “back” virtually its entire shorting operation in the Comex futures market.

Should an ordinary individual acquire the power of invisibility, and thus be able to monitor JP Morgan’s secret silver hoard inside its bullion vault, what they would undoubtedly see is an impressive mountain of silver. On 364 of the 365 days of the year, there would be a sign in front of that stack of bullion reading “JP Morgan’s short position”, while on that other day of the year (when SLV’s “auditor” shows up to supposedly verify that JP Morgan is honouring its duty as “custodian”) the sign in front of the bullion is changed to read “iShares Silver Trust”.

It is a neatly symmetrical scam, and one only made possible in the U.S.’s “world” of faux-regulators. However, one aspect of this sham always bothered me despite its wonderful symmetry. Knowing how Wall Street banksters love to leverage everything they touch by at least 30:1 (and in the case of silver derivatives by more than 100:1) it always seemed oddly conservative that JP Morgan’s SLV sham was leveraged by a mere 2:1. Enter (again) Jeffrey Christian.

It was Jeffrey Christian who helped to confirm the existence of gold manipulation in The Great Gold Debate between himself and GATA stalwart, Bill Murphy. Immediately after Christian claimed that he had “never seen” any evidence of gold manipulation in all of his years as a banker, he then proceeded to describe some of those acts of manipulation. One example Christian gave was how the bullion banks would (falsely) spread rumors that a particular European central bank was about to dump more gold onto the market, in order to “spook” the longs and depress the price.

When I heard that Murphy and Christian were going to reprise their roles in a second debate (at the current “Silver Summit”), this time with greater emphasis on the silver market, I couldn’t wait for what new revelations would slip past Christian’s lips. I wasn’t disappointed, as Christian was kind enough to supply the reasoning behind JP  Morgan’s mere 2:1 leveraging of SLV’s silver (i.e. 100% of the silver for JP Morgan, 0% of the silver for SLV unit-holders).

The explanation is found in one of the last remaining “weapons” which the banksters can use to manipulate the gold and silver markets: calling up their good friends who run the Comex (the CME Group) and “complaining” that margins need to be raised again in the gold and/or silver markets. Christian observed that when it comes to the impact of raising margin requirements there is an important distinction between whether the various players in this market have “backed” or “naked” positions:

“…increasing margins [with] a rising price is actually harder on the shorts unless they have physical silver against those positions.” [emphasis mine]

He further explained that “naked” players must post additional “collateral” each time margins are raised, while those whose position is “backed” by actual metal do not. Thus what Christian is telling us is that JP Morgan uses the silver which it claims to be holding on behalf of the unit-holders of SLV as a “shield” to protect itself from the impact of increases in margin requirements, while “long” traders in that market (who don’t personally have their own bullion vault) feel the full brunt of each and every increase.

Christian’s latest revelation provides an answer to a question which has obviously been burning in the minds of long investors especially in recent months: why do margin increases always seem to impact longs much more severely than the shorts – as demonstrated by the precipitous drops in price which occur with each and every margin increase?

Hopefully Christian’s explanation of this mystery will help ease the rattled nerves of the newer investors to this sector, especially since (as I’ve observed before) this is another one-shot weapon for the banksters (much like dumping their bullion). The CME Group can crush all of the leverage out of these markets (by moving margins steadily toward 100%) – and then have no means of controlling the market at all – or it must give back those margin increases through reversing margins lower.

When Jeffery Christian claimed that the “purpose” of raising margin requirements was purely to address “increasing volatility” in the gold/silver markets, Bill Murphy shrewdly observed that the silver market had seen its volatility plummet in recent weeks (as the price has been trapped in a narrow trading range) – and yet the CME Group had refused to lower silver-margins in response.

Note also what is implied in Christian’s remarks. The only way that increases in margin requirements could be “harder on the shorts” (as a matter of simple arithmetic) is if the positions of the shorts were much larger. The interesting aspect to that obvious observation was that Christian made his assertion immediately after claiming that there was not “undue concentration” in the size of silver short-positions (despite the overwhelming evidence to the contrary).

The Great Silver Debate is now history. While Bill Murphy had to once again contend with Jeffrey Christian’s tenuous relationship with “the truth”, I’m sure that he woke up today smiling. After all, with “enemies” like Jeffrey Christian, who needs “friends”?

ETF Daily News Notes Some Related ETFs: Sprott Physical Silver Trust (NYSE:PSLV), ProShares Ultra Silver (NYSE:AGQ), SPDR Gold Trust (NYSE:GLD), ProShares UltraShort Silver (NYSE:ZSL), iShares Silver Trust (NYSE:SLV).

Written By Jeff Nielson From Bullion Bulls Canada

Jeff Nielson is from Canada and is a writer/editor for Bullion Bulls Canada http://www.bullionbullscanada.com/. He has a personal background in law and economics. Bullion Bulls Canada provides general macro-economic and political commentary, since the precious metals markets are among the most complex (and misunderstood) in the world.

Bullion Bulls Canada also provides basic coverage of Canadian precious metals mining companies. Canada is the global leader in mining exploration, and Canadian-listed mining companies (on the Toronto Stock Exchange and Venture Exchange) are responsible for the majority of the world’s most-promising discoveries.


NYSE:AGQ, NYSE:GLD, NYSE:PSLV, NYSE:SLV, NYSE:ZSL


 

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  1. Christopher Neal Wyatt
    October 27th, 2011 at 12:05 | #1

    Very nice analysis! I, too, had watched the great silver debate on Kitco, and even posted the video on my website. Although I am familiar with the issue of PM manipulation, after watching the debate the first time, I felt less certain of what was really going on.

    Even though Bill Murphey’s accusations are likely correct, Jefferey Christian is clearly the more articulate of the two; and I was thoroughly impressed with Jeffery’s quick, well-worded responses to Bill’s arguments. For an outsider unfamiliar with the facts of the matter, it is easy to understand how Jeffery Christian may have appeared the ‘winner’ in the debate.

    In my heart, I knew this wasn’t true, because I have read too much about the issue to know that something behind Mr. Christian’s polished, corporate veneer was still rotten; yet I did not know quite how to put this to words. Mr. Nielsen, you have done this for me! Thank you.

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