The Silver Shorts’ Last Stand?
I started calculating the financial plight of the 8 big shorts in COMEX gold and silver on a twice-weekly basis around June 2019. That’s when gold moved higher. The big shorts had added quite aggressively to short positions early in the move and when gold rose $100, the big shorts were out $2.2 billion. As gold rose, the big shorts kept getting deeper and deeper into a financial hole. From the end of the third quarter of 2019 when the 8 big shorts were underwater by $2.4 billion, the losses have progressively worsened over the five subsequent quarters to yearend 2020, when the combined loss hit $14 billion.
The drastic turn in the financial fortunes for the 8 big shorts is not the only change that has occurred since the summer of 2019. A development I believe may be just as important, is the change in the composition of the big shorts. The former king of the big shorts since 2008, JPMorgan, broke ranks and completely covered its gold and silver short positions. It has now been 10 months since JPM has held no significant COMEX gold and silver short position. It makes sense for JPMorgan to have eliminated its dominant COMEX short positions, as that allows it to profit on its massive gold and silver physical holdings (25 million ounces in gold and 1 billion ounces in silver), on which it is ahead by $25 billion. But it’s not just the profit motive alone suggesting that JPMorgan may have sworn off its manipulative short selling.
Along with a monetary penalty it received in its recent settlement with the Justice Department and the CFTC, JPMorgan agreed to a deferred criminal prosecution agreement. This would expose the world’s most manipulative bank to untold penalties should it do anything improper for the next few years. The monetary penalty was rinky-dink – the deferred criminal prosecution agreement was as serious as a heart attack. JPMorgan has good reason to stand aside and not add to short positions on future price rallies.
The 8 big shorts have been “lucky” so far, that their predicament isn’t widely recognized. I’m sure that a small number of sophisticated investors are aware of the plight of the 8 big shorts. But the simple truth is that there has been no mention of the concentrated short position in COMEX gold and silver futures by any mainstream media source. Even on the Internet, the concentrated short position is hardly mentioned. There seems to be a growing groundswell of opinion that silver is the cheapest asset around (it is) and I’m even starting to hear some ask why silver is so cheap to begin with? Let me make it easy for you – the only reason silver is so cheap is because of the concentrated short position of the 4 biggest traders, who hold more than 312 million ounces short, as of the latest COT report. When combined with the next 4 largest traders, the concentrated short position grows to nearly 404 million ounces. The connection couldn’t be more direct. Silver is the cheapest because its short position is the largest.
Over the past year and a half, the biggest damage to the 8 big shorts has come from gold, but more recently silver has begun to add to the loss mix. At current prices, silver accounts for as much as $3 billion of their total losses. Every $8 move higher in silver will cause that loss to increase by a further $3 billion. A move to $50 silver, commonly bandied about, would bring the 8 big shorts an additional $10 billion in losses from silver alone. What happens if the 8 big shorts move to cover and buy back their silver short positions in order to avoid catastrophic losses? Any such attempted short covering would cause the most drastic price move in history. This is the explanation for why the big shorts haven’t rushed to cover. I believe they finally grasp the extent of the bind they are in.
The only alternative for the big silver shorts is to try and buy time and postpone the inevitable by arranging sharp selloffs in hopes of buying back as many short positions as possible, something they have not been able to do. Complicating the plight of the big shorts is that they have buying competition. As more and more investors and financial entities move into silver, their losses mount. If they are overrun and must buy back their shorts at any price, it will be like Tesla shares on steroids. This is the big shorts’ last stand. The only difference between the big silver shorts of today and General Custer of yesteryear, is that historical records suggest Custer didn’t realize he was trapped until the last moment. My guess is that the big silver shorts now know they are doomed and are just delaying the inevitable.