How They Did It

by Turd Ferguson, TFMetals Report The Vaults of London are empty. The GLD is being drained. Eastern demand remains insatiable. So how did The Banks manage to maintain the paper price downtrend in 2014? It’s quite simple actually. Before we get started, please go back and re-read this post from April of last year. No, the fractional reserve bullion banking system has not yet collapsed but that doesn’t mean we’re not still headed in that direction: http://www.tfmetalsreport.com/podcast/5678/empty-vaults-london One more time, here’s Bloomberg Industries’ Ken Hoffman on December 13, 2013: And here’s an updated chart of the primary downtrend that we’ve been following since May of 2013 (click to expand):

So, how did they do it? How have The Banks managed to cap price and maintain the downtrend, thereby managing sentiment and ensuring that western demand for gold has not returned? Again, per Ken Hoffman, what will The Banks do if western demand returns? From where will they get the gold?

As you can see on the chart above, my trendline is clearly valid. Each and every time price met or exceeded the line in 2014, it was almost immediately forcibly reversed and shoved back lower. This takes a lot of momentum-blunting selling but from where did all of this selling originate? The answer won't surprise you.

Recall that every month, the criminally corrupt and complicit CFTC puts out a report called the "Bank Participation Report". This report gives summary positions of the largest US and non-US banks in every major futures market and cen be found at the CFTC website: http://www.cftc.gov/MarketReports/BankParticipationReports/index.htm

As this pertains to gold, each month the report summarizes the positions of the four largest US banks (a combination of JPM, MorganStanley, Citi, Goldman and others) as well as the twenty largest non-US banks (a combination of Scotia, HSBC, DB, UBS, Barclays and others). Keeping in mind that JP Morgan was fined last year by the CFTC for deliberately and repeatedly reporting false and inaccurate data (http://www.cftc.gov/PressRoom/PressReleases/pr6968-14), the latest report is instructive nonetheless.

Again, these reports are issued on the first Friday of every month, taken from data surveyed on the first Tuesday of every month. Here's how the BPR of January 7, 2014 looked. On that date, paper price was $1229 and total Comex gold open interest stood at 383,021 contracts:

                                            GROSS LONG               GROSS SHORT                  TOTAL NET

U.S. Banks                                59,291                                  20,032                                  +39,259

non-U.S. Banks                       26,128                                  32,492                                    -6,364

TOTAL                                                                                                                                   +32,895

So, repeating…One year ago, after price had fallen in 2013 from near $1800 to near $1200, the 24 banks held a NET LONG position of 32,895 contracts.

Now, of course, a NET LONG position was something entirely new for The Banks. They'd been NET SHORT since time immemorial. In fact, one year earlier on January 8, 2013, the 24 banks were NET SHORT 128,051 Comex gold contracts. In a bit of remarkable good fortune <sarc>, The Banks had managed to use the 30% price drop of 2013 to adjust their net position by over 160,000 contracts! Now with price bottoming in late 2013, they seemed poised to profit immensely from a rebound.

But paper profits are not what this is all about…at least not here at The End Game when the Banks' very survival is on the line. Again, Ken Hoffman told us that "the vaults of London are virtually empty" and he wondered from where the gold would come if  western investment demand were to return in 2014. The solution offered by The Banks? Sell! Sell into every rally!! Maintain the downtrend at all costs for as long as possible!!! And, again, the proof is in the chart posted above.

And what does this look like from a Bank Participation Report standpoint? Last Friday, the latest report was released, based upon the survey taken just last Tuesday with price at $1219 and total Comex open interest of 394,021 contracts:

                                            GROSS LONG               GROSS SHORT                  TOTAL NET

U.S. Banks                                11,728                                  37,321                                    -25,593

non-U.S. Banks                       32,985                                 80,227                                   -47,242

TOTAL                                                                                                                                    -72,835

 

Now, take a look at those numbers again. For the calendar year, price and open interest have barely changed. However, The Banks have once again adjusted their net position by over 100,000 contracts.

Now, why would they do that? At the beginning of 2014, The Banks had positioned themselves for HUGE profits from a rising gold price and, if they had simply stood down and allowed the market to rise, this is exactly what would have happened. A 25% rally from $1200 to $1500 would have netted them nearly one billion dollars. A BILLION!

But that's not what they did. Instead, by selling into every rally, thereby blunting momentum and keeping the downtrend in place, The Banks converted a 32,895 contract NET LONG position into a 72,835 contract NET SHORT position. That net change of 105,730 contracts is equivalent to nearly 10.5MM ounces or nearly 330 metric tonnes of paper gold.

So are The Banks stupid? Have they suddenly forgotten that they're managed and populated almost entirely by greedy, soulless demons hell-bent on maximizing profits and bonuses? Or, perhaps, is something different in play here…a larger agenda?

Re-watch Ken Hoffman from December of 2013:

"The bigger story than the decline of gold is what's actually happened to the gold. You could go into a vault in London a couple of years ago and they were packed to the rafters with gold and the gold would trade from me to you to somebody else. You could walk into those vaults today and they're virtually empty. All that gold has been transferred out of London, 26 million ounces. It's gone to Switzerland where it has been recast into a higher grade, shipped off to Hong Kong and then into China, never to return.

So the most interesting thing, especially as we look into 2014, is if there ever is interest in gold again…and I'm not saying there is or isn't…that gold is just not there anymore. It's really amazing. They're building these 2,000 metric ton vaults for gold all over Asia and the Chinese, they don't want to have U.S. dollars anymore, they want to have gold." 

So, please allow me to summarize:

  • The paper price plunge of 2013 led to insatiable "Eastern" demand which not only depleted the GLD, it emptied the gold vaults of London.
  • The big fear of the bullion banks becomes "if there ever is interest in gold again, that gold just isn't there anymore".
  • Western demand for anything…stocks, real estate, gold, anything…keys off of a rising price. Therefore, the key to managing western gold investment demand is maintenance of the price downtrend begun in late 2012.
  • When the multi-year bull market resumes, "western" physical demand will return with it.
  • Demand for physical gold from a bullion banking system which doesn't have any is a significant problem.
  • And how does a bank, desperate to survive and perpetuate the current system, manage paper price and by extension, western physical demand?

January 7, 2014. Price $1229. Open interest 383,021. Total bank position NET LONG 32,895 Comex gold contracts.

January 5, 2015. Price $1219. Open interest 394,021. Total bank position NET SHORT 72,835 Comex gold contracts.

And again, by "adjusting" their net position by nearly 106,000 contracts, The Banks give you a chart that looks like this:

So what will 2015 bring? No doubt more of the same, at least for now. However, paper price clearly found a physical floor in November of last year, below $1180 and near $1150. Soon, support in this area will intersect The Banks' brutally enforced downtrend line. Before/when this happens, expect fireworks and tremendous volatility. Which direction price ultimately breaks will set the tone for remainder of this year.

As you might expect, my money is on a break UP and forward in price. That said, we've all learned that The Banks are dangerous and cagey villains…particularly when cornered. Therefore, remain alert and stay vigilant.

However, if the gold vaults are truly empty and if we did in fact find a physical floor to price late last year, then the price of gold is set for a massive rebound in 2015 as the market for physical gold finally wrests pricing control from the paper charade of the bullion banks. Be ready for an exciting and eventful year and prepare accordingly.

TF

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