Is A Giant Short Squeeze In Silver Brewing? – Dave Kranzler

TND Guest Contributor:  Dave Kranzler |

Steve St. Angelo wrote an interesting article reporting that U.S. silver imports have mysteriously jumped nearly 44% during Q1 2015 vs Q1 2014.  As he details, the big increase is not explained by the demand numbers for industrial silver, silver eagles or the Comex warehouse vault silver stocks.  (click on graph to enlarge; source: SRS Rocco Report)

I’m wondering if perhaps JP Morgan might be the source of the import demand.  JPM is the custodian of the SLV vault.  As of the latest data available from the NYSE, the short interest in SLV  is 20.6 million shares.  This is an 11% jump in short interest over the previous week’s report.  The short interest represents 20.6 million ounces of silver that are theoretically/potentially owed to the SLV Trust.  If large holders of SLV decide to turn in their shares for redemption of silver bars – and assuming they are not blocked from doing so by the Trustee – which I know is happening with GLD – the SLV Trust would find itself in an awkward position if it can’t honor deliveries.

Furthermore, JPM is also thought to be the largest source of short interest in Comex futures.  Many of us have been postulating that, because of the trading behavior in silver over the last 6 months or so, it appears as if there is a physical supply vs. delivery demand problem brewing in silver.  This group includes myself, GATA’s Bill Murphy and Sprott Asset’s John Embry.  James Turk has pointed out that silver is currently in backwardation in London, which means there is a short term shortage of physical silver available for delivery into LBMA forward contracts.

To put the Comex silver open interest in perspective, as of the latest open interest report, there were 116,606 open contracts for the July delivery month.  This translates into 583 million ounces of silver.   As of the latest warehouse stock report, there were 60 million ounces of silver available for delivery in the “registered” account.

In other words, nearly 10 ozs of paper silver has been sold to buyers for every ounce of real silver that is available for delivery.  This is just for July.  You don’t have to be Einstein to understand the potential force behind a short squeeze if just 20% of the longs on the Comex decide to stand for delivery in July because they are nervous about the dollar/economy.

Between the short interest in SLV, the high probability that a significant portion of SLV silver has been hypothecated in some form, and the enormous naked short interest position in Comex silver futures vs the alleged amount of silver stock available to deliver on the Comex, it’s entirely possible that a huge short squeeze in physical silver is fomenting.  Perhaps it was JP Morgan and other bullion banks who were responsible for the enormous amount of silver imported into the U.S. during Q1 2015 as a means of partially covering their naked short position in silver via Comex futures, SLV short interest and OTC silver derivatives.

I continue to stand by my prediction that silver will be the best performing asset in 2015.  If I’m right about the potential for a short squeeze in physical silver, this trade will be a slam dunk.

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About Dave Kranzler:

 I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for Bankers Trust. I have an MBA from the University of Chicago, with a concentration in accounting and finance. My goal is to help people understand and analyze what is really going on in our financial system and economy. You can follow my work and contact me via my website Investment Research Dynamics.  Occasionally, I publish on Seeking Alpha too. As a co-founder and principal of Golden Returns Capital, LLC Mr. Kranzler co-manages the Precious Metals Opportunity Fund, a metals and mining stock investment fund.

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