Is Now a Bad Time to Be Short Silver?

by: Chris Mack

The pressure on silver shorts has been relentlessly increasing on a daily basis. On the heels of CFTC's statement of intention to actually enforce antitrust regulations in the silver market, two lawsuits were filed against JPM and HBC for manipulating the silver price. With the testimony of whistleblower Andrew Macguire and admission that there has been fraudulent activity in the silver market by CFTC Commissioner Bart Chilton, these lawsuits have a much larger chance of success than just a year ago.

One of those lawsuits is seeking group or class action status if enough investors sign up. Silver investors who suffered from losses in 2008 and are interested in joining the lawsuit can contact the law offices of Christopher Lovell at 212-608-1900.

While lawyers and regulators are pressuring the banks by taking legal action, the suffering for the silver shorts is just beginning. Whether or not the plaintiffs prevail in their legal actions, evidence that JPM and other banks have cornered themselves into enormous naked short positions on physical silver is coming to surface to the mainstream. The lawsuits are blood, and sharks are circling the market itself. Profit is profit and few people will shed tears for the commercial banks should they be squeezed.

Sprott Asset Management has announced that it is planning to raise $500 million for a publicly traded silver ETF that will only invest in physical bullion trading under the symbol PSLV. Sprott already has a similar gold ETF that trades at a large premium to the price of gold - perhaps because investors truly believe that it is backed by the physical metal. Both the gold ETF (NYSEARCA:GLD) and silver ETF (NYSEARCA:SLV) have been questioned for their ownership of the physical gold and silver bullion. Interestingly, JPM is the custodian of the SLV silver ETF. Given Sprott's solid record, there is a possibility of mass redemption from the questionable SLV ETF by investors who reallocate into PSLV.

Demand for physical silver has increased such that the US Mint announced on September 30th that it will increase its premium for silver eagles by a third.

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Click to enlarge

Click to enlarge

Over the last few weeks, silver has oscillated between $23 and $25 as the commercial shorts have been thrashing in an attempt to find a weakness in bids. There is no weakness, and the $2 correction may already be over. Every 50 cent or $1 takedown is met with a wave of bids, and the commercial shorts are trapped. Thus far, the bids have remained unaggressive with most buying fulfilled on intraday dips. It is only a matter of time before the big money starts to aggressively buy.

Disclosure: Author is long SLW, PAAS, SSRI