The commodity futures market allows speculators to bet against each other on where the prices of commodities are headed. Participants make money by out-guessing their competitors.
Only about 3% of the contracts ever result in delivery of the physical commodity. The speculators don’t want the commodities. They just want the price action.
All of a sudden, without warning, JP Morgan is demanding delivery of silver — not money. This is never done. Well, almost never. Bunker Hunt tried that in 1979, and the COMEX changed the rules. He was trying to squeeze the silver market. The COMEX opted out. Hunt lost billions of dollars.
Now JP Morgan is taking delivery. What do they know that we don’t? They aren’t saying, of course.
If this practice spreads, there is going to be a squeeze on those who are short silver. They have promised to deliver silver at a fixed price on a specific date. If they are asked to make delivery, they will be hammered. They can’t do it. There is never enough of any commodity to fill the all of shorts’ promises to deliver. The commodities future market assumes that hardly any longs will demand physical delivery.
So far, there is no panic among the shorts. Silver’s price is down a little today. But it makes me wonder. Why would JP Morgan demand physical delivery? Is this getting close to the bottom for silver? My guess is yes.