Banks On The Run

by Turd Ferguson, TFMetals Report

The latest CFTC Bank Participation Report brings the usual horrors and it confirms our “inherently unfair” thesis. However, there’s also a bigger picture that gold investors everywhere need to consider.

Before we begin, the usual background:

  • The CFTC’s Bank Participation Report is issued monthly from a survey taken at the Comex close on the first Tuesday of every month. The report summarizes the combined positions of the four largest U.S. banks (primarily JPM, MorganStanley, Citi, Goldman but occasionally others) and the twenty largest non-U.S. banks (Scotia, HSBC, DeutscheBank, UBS, Barclays and others).
  • These reports might be utter nonsense and complete falsifications. Just last year, JPMorgan was fined by the CFTC for “repeatedly submitting inaccurate reports relating to the required reporting of positions”. See here:

I will leave it up to you, dear reader, to assign or withhold legitimacy to/from the data. My job is simply to report to you on what the data shows…and it’s sickening.

Ole Turd has written volumes over the past few weeks, describing the inherent unfairness of the Comex paper derivative market structure. (An example: Unlike other “markets”, The Bullion Banks simply create new paper contracts whenever speculative demand increases. They do this to blunt momentum and stall price. Then, as price invariably retreats, The Banks use Spec liquidations to cover and withdraw these very same contracts.

For example, during January’s price rally of over $100, total Comex gold open interest rose from a low of 371,000 contracts to a high of 451,000. Now that price has fallen back $70, total Comex gold open interest has drawn back down to 403,000. Near round-trip in price, near round-trip in open interest, too. Neat trick, huh? It’s good work if you can get it.

We’ve documented this along the way by monitoring the daily open interest changes as well as the CFTC’s weekly Commitment of Traders Report. Therefore, last Friday’s Bank Participation Report was not surprising but it was grotesque, nonetheless.

I’ll save you the gory details this time of how the BPR has changed, month over month, for the past two years. I just wrote about this again last month and you can check it out here if you’d like:

Instead, this time I’d simply like to focus on how the 24 banks have changed their positions over the past month and the past year. It’s pretty remarkable stuff.

A little over a month ago and with price at $1219, the January BPR survey was taken. When the report was released three days later, it looked like this:

                                         GROSS LONG                   GROSS SHORT                     TOTAL

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

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

TOTAL                                  44,713                                       117,548                                 -72,835

What this shows is that, as of January 5 2015, the combined position of the 24 largest banks in the world that trade paper gold was 72,835 contracts NET SHORT. That’s 7,283,500 ounces or about 226 metric tonnes. It’s interesting to note, of course, that the entire Comex gold vaulting system only holds 8,166,900 troy ounces (registered and eligible) or about 254 metric tonnes.

Over the next four weeks, price and open interest both rose and by the time this most recent BPR survey was taken last Tuesday, gold was up $41 to $1260 and total OI was up 25,000 to 419,524 contracts. The report, released late last Friday showed this:

                                         GROSS LONG                   GROSS SHORT                     TOTAL

U.S. Banks                               9,163                                        65,901                                 -56,738    

Non U.S. Banks                     20,009                                      96,264                                -76,255

TOTAL                                   29,172                                      162,165                                -132,993

As you can see, as of last Tuesday the 24 largest gold banks were now NET SHORT 132,993 Comex gold contracts. That’s the equivalent of 13,299,300 troy ounces of paper gold or about 414 metric tonnes.

More startling and in confirmation of our “inherent unfairness” storyline, over the past four weeks:

  • Price rose by $41 or 3.37%
  • Total Comex gold open interest rose by 25,503 contracts or 6.46%
  • The total 24 bank NET SHORT position rose by 60,158 contracts or 82.6%

Oh my goodness. Just typing those numbers makes me want to vomit. And to think that there are still Cartel Shills and Apologists out there that claim that “the banks are just making a market” and/or “hedging for miners”. If you believe that, I’ve got an Idaho potato farm to sell you.

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