Heavy Metal: No Silver Medal for J.P. Morgan

by Todd Shriber

J.P. Morgan’s (JPM) proclivity for big-time metal trades looks like urban lore on the surface, but it is in fact quite real. The bank has taken a shining to the silver market, a story Trader Daily highlighted last month. Now the world knows J.P. Morgan is also bullish on copper.

The largest U.S. bank by market value is acting as the Federal Reserve’s strong dollar henchman, charges London’s Guardian newspaper.

Put another way, J.P. Morgan has been trying to suppress silver prices to make the U.S. dollar look more appealing and now sits on a naked short position of 3.3 billion ounces of paper silver, the Guardian reports. That could be more than all the physical silver in the world, according to an article on Benzinga. That’s some kind of exposure, especially to a security that is in the midst of its strongest bull market in three decades.

Silver futures closed above $30 an ounce on Monday for the first time in 30 years. A Google news search of the phrase “silver prices 30 years” returns over 1,000 results in less than two-tenths of a second. The anecdotes highlight just how inept J.P. Morgan has been in its attempts to suppress silver prices, but the best tidbit is the fact that the iShares Silver Trust (SLV), the most heavily traded exchange-traded fund backed by physical silver, is up 70% this year.

Now, J.P. Morgan has been unmasked as the bank behind a trade that occurred last week on the London Mercantile Exchange (LME). This wasn’t any old trade. It was a $1.5 billion grab of 50% to 80% of all outstanding copper warrants on the LME, according to The Telegraph.

Of course, the bank has an ulterior motive – its foray into an ETF backed by physical copper. The Guardian and several other sources speculated that the creation of the ETF was the catalyst behind J.P. Morgan’s copper binge.

To this point, copper has been conspicuous by its absence from the physically backed metals ETF genre. But issuers such as J.P. Morgan, Deutsche Bank (DB), Blackrock’s (BLK) iShares unit and ETF Securities intend to fix that.

Unlike with silver, J.P. Morgan appears to be on the right side of the copper trade. RBS Global Banking & Markets expects a copper ETF could lift futures to $4.50 a pound from just below $4, according to Barron’s. One analyst quoted by The Financial Times said a successful copper ETF is the difference between copper at $8,500 per ton and $10,000 per ton.

Trading For Dummies: It’s bad to be naked short something that keeps going up, and covering those shorts will only drive the price higher. For those that are short J.P. Morgan, the Guardian offers interesting advice. If 5% of the world’s population bought just a one-ounce silver coin, the bank would be staring at $1.5 trillion liability against its $150 billion market cap, the paper surmises.

Too bad $1.5 billion in copper can’t cover J.P. Morgan’s silver exposure. Some may say silver medals are for the first loser and that’s kind of harsh, but this much is clear: Bankruptcy courts don’t distribute silver medals.

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