J.P. Morgan and the SLV Short Position

For a couple of years, some silver analysts have been suggesting that J.P. Morgan (who happens to be the custodian of the SLV silver) is responsible for the SLV short position. The idea is that they are short on COMEX, and needed somewhere else to short silver. Other people have countered that all ETFs can be sold short, and that it is typical traders that want to be short silver.

What Happened in January, 2013 with SLV

As a summary, on January 16, 2013, iShares reported a massive 18.4Moz deposit of silver into SLV (one of the largest deposits of silver into SLV; the largest in several years). A few days later, we discovered that JPM had opened a vault in New York, and deposited exactly 10Moz of silver in it, accounting for 10Moz of the SLV shares. We also discovered that at the same time, JPM substituted 8.9Moz of silver (placing 8.9Moz of JPM's silver into one vault, while closing out another vault run by Johnson Matthey that had 8.9Moz), suggesting someone bought 8.9Moz of physical silver from Johnson Matthey at the same time everything else was going on.

The SLV Short Position

Some people suggested that the huge 18.4Moz deposit of silver into SLV was to cover the SLV short position (which was about 17Moz). One problem with this suggestion was that the SLV short position is likely owned by many different parties.

However, on February 12, the new SLV short position was released, covering the January 16, 2013 transaction. It showed a change from 17,866,500 shares short to 7,297,500 shares short, or a change of roughly 10,219,000oz. Given that this is within 2% of the amount of silver that JPM deposited into their new SLV vault in New York, the majority of the change in short position was almost certainly JPM closing out a 10Moz short position they had.

Most likely, they created the 10Moz short position over time as they collected metal in New York in preparation of opening the new vault for SLV. When the time was right (perhaps a large buyer of SLV and physical in mid-January), they allocated the 10.0Moz of silver in their new vault to SLV (generating about 10Moz worth of SLV), and simultaneously closing out their 10Moz short position in SLV.

So the SLV Custodian Shorted SLV?

All evidence seems to suggest they did (although it cannot be conclusively proven).

Why would they do this? One theory is that they sold shares short to meet demand before silver could be deposited. However, the more logical explanation is that they planned opening the new New York vault (to faciliate transfers to/from COMEX and SLV), and instead of depositing silver in London (the only place they could to create shares until the new vault was open), they gathered silver in New York as needed to create new SLV shares (which they did by shorting them). Once there was "enough" silver shorted and allocated to the SLV vault, they opened the warehouse while simultaneously closing out the short position.

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