What would happen if the Nymex/Comex commodity exchanges can no longer keep their promises of delivering silver to the holders of the certificates? We believe that the Nymex/Comex spot price is irrelevant since it’s not backed with real silver. The demand for physical silver is strong and physical price has decoupled from the paper spot price.

Since the 1950’s, silver use and consumption, has made silver more rare than gold, in above ground, refined and deliverable forms.Estimates suggest there are 200-300 million ounces of refined, above ground silver available to the market at the present time. Each silver contract on the commodity exchange is a promise of delivering 5000 troy ounces. Frequently there are 200 000 Silver contracts in circulation. 200 000 contracts * 5000 troy ounces = 1 000 million of troy ounces.

How is it possible that there is only 200-300 million troy ounces of Silver above ground and at the same time 1 000 million troy ounces of circulating paper silver? The answer is that it is not possible. The more people that takes delivery from their contracts, the higher the risk of the commodity exchanges to default on their promise to deliver the silver. The price of physical Silver will go to the moon when the exchanges can no longer supply the market with their paper Silver.

Don’t buy certificates with a promise of delivery. Buy real physical silver.

I believe that silver prices are artificially low due to a large concentrated naked short position. It’s not a coincidence that the day silver reached its multi-decade high of over $21 per ounce in March of 2008, was the same day Bear Stearns failed. Bear Stearns was a holder of a massive short position in silver. In our opinion, this was likely a naked short position because there is nobody in the world who owns such a large amount of silver for Bear Stearns to have borrowed.

The reason why I believe the Federal Reserve was so eager to orchestrate a bailout of Bear Stearns, is because Bear Stearns was on the verge of being forced to cover their silver short position. Because the silver market is so small and tightly held, if Bear Stearns was forced to cover their short position, silver prices could’ve potentially rose to $50 per ounce or higher overnight. The world would’ve seen how economically unstable our country is and confidence in the U.S. dollar would’ve rapidly deteriorated.

JP Morgan still holds the silver short position they inherited from Bear Stearns. The concentrated naked short position in silver today is the largest short position in the history of all commodities, as a percentage of its market size. Eventually, JP Morgan will have to cover this short position or it could jeopardize their existence.

The best evidence that the short position in silver is naked and not backed by real silver, is the differential between what silver trades for on the Comex and what real people are willing to pay for physical silver on eBay. Every hour on eBay, there are dozens of one ounce silver coins selling for approximately $25. That’s about a 43% premium over the current spot price of silver. With so much demand for physical silver, we doubt the silver shorts in the paper market will be able to manipulate prices downward for much longer. A major short squeeze could be right around the corner and silver could take off in a way that shocks even those who are most bullish.