Tag Archives: Comex open interest

Gold And Silver Are Potentially Explosive

Gold and silver are acting differently right now. Usually when the open interest in the paper gold (Comex) net short of the bullion banks becomes overweighted, it’s a signal that they are getting ready attack the price of gold by triggering massive stop-loss selling by the technically-driven hedge funds.

And through last Tuesday, per the latest COT report, the Comex banks had piled heavily into the short side, feeding paper shorted to the hedge funds. And true to form, the market was attacked aggressively this past week starting Tuesday with the expiration of Comex options. Interestingly, the banks had to wait until after the Comex floor trading closed on Tuesday in order to take advantage of a thinly-traded electronic “access” market that is open for about another 90 minutes after the Comex closes in order to push down the price of gold enough to trigger automated hedge fund algo stop-loss selling.

The attacks on the price of gold persisted through Thursday, resulting in what appears to be a record weekly percentage drop in Comex gold open interest. But this attack resulted in a shallow price decline.  And if you trace the build-up in the bullion bank short position over the past couple of weeks, it appears that the banks were willing to sustain losses on those shorted contracts in order to cover them.  Bill “Midas” Murphy at Lemetropole Cafe first pointed this pattern out to me and I confirmed his theory by tracing out the rise in the commercial short interest with the movement in the price of gold.

At the same time, there has been a massive amount of silver – as reported – moving in and out of the “registered” accounts at the Comex silver vaults.  The silver in the “registered” account is the silver designated to be available for delivery.   On the last two days of this past week, for instance, nearly 30% of the silver held in the registered account was moved into the “eligible” account. The “eligible” account is the account in which silver is allegedly “safekept” for the owner of that silver.

Finally, although the mainstream financial media and the fear porn oriented alternative media has been making a lot of noise about the sudden fall-off in the sales of minted bullion coins, I heard a report from a large bullion dealer who said that, while retail coin sales are slow, his company has been receiving very large orders from very connected quite off the radar types purchasing large quantities of physical silver. The recurring theme from these buyers is a desire to move money out of electronic fiat currency bank credits and into privately safe-kept precious metals in bullion form.

Eric Dubin (The News Doctors) and “Doc” invited me to join them on their weekly Metals and Markets podcast to discuss the latest developments which point to possibility of a big surprise move to the upside in gold and silver that is driven by the physical market:

The Comex Is One Big Lie

The total amount of ALL gold held by ALL market participants at ALL the Comex warehouses, whether it is on offer or not, is about 218 tonnes. That is less than one month’s demand for physical bullion in China and India and India alone. And by far the vast majority of that gold is not for sale AT THESE PRICES. And given the leverage of paper claims everywhere, not just Comex but at the more important LBMA, and one can see that a misstep by the gambling goofballs of Wall Street could lead to quite a messy market situation. This also is what Peter Hambro said.  – Jesse’s Cafe Americain (must read article)

In fact, the United States itself has become the biggest lie in history, but that’s for another day.   For some reason there’s a debate raging about whether or not a shortage of bullion – gold and silver – really exists.  That in an of itself is a fatuous endeavor because nearly every ounce of gold ever mined still exists.   Furthermore, there will always be a fiat currency price level at which a holder of gold or silver will be willing to exchange their bullion for paper currency.

Even more silly is the fact that the paper bullion market apologists point to the published Comex warehouse stock of gold and silver and use that as their “proof” that there’s plenty of bullion available.  I’m not sure why the argument uses the Comex as the point of focus. Maybe because, in theory, it has more “transparency” than the LBMA.

However, there’s one small problem in using the Comex as data a proof of existence:   “The information in this report is taken from sources believed to be reliable: however, the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness. This report is produced for information purposes only.”

This disclaimer showed up mysteriously without any formal news release on the daily Comex warehouse reports in June 2013.  The legal translation of that one sentence goes like this:  “this report shows numbers which represent quantities of gold and silver which may or may not exist and the CME hereby is legally immune from any legal claims against it should those numbers be fraudulent.”

My point here is that the Comex is a big lie.  It’s the precious metals market equivalent of Enron.  The trade and inventory data are cleared, accounted for and reported by the big banks that operate the Comex.  Do you trust the banks to report accurately and honestly the data in that report with an air-tight legal disclaimer attached to it by the CME’s lawyers?

Anyone can see that the Comex is nothing but a paper bullion trading exchange.  The amount of gold represented by the paper gold open interest is now well over 200x the amount of alleged gold that has been designated as available to be delivered.  As of today, the paper gold o/i is more than 6x greater than the total amount of gold reported to be held in Comex vaults (see the disclaimer again).

The entire matter could be settled with an independent audit made available to the public.  It should be required by law because if myself and many others are right, if and when the Comex defaults the the CME will likely look to the Government for a bailout.  Here’s why:

41 million ounces of paper gold – the current open interest in paper gold – is valued right now at around $45 billion.  If and when the Comex eventually defaults, the only card it has to play is the force majeur clause in Comex contracts, which enables the Comex to settle paper contracts in paper currency. But as of its latest 10Q, the CME had only $1.5 billion in cash and $21 billion in book value (which assumes its assets are properly marked as to their worth).

My friend and colleague, Craig Hemke, offered some compelling arguments today in response to neanderthal analysts who were out and about serving up half-truths, distorted trusts and willful omission of facts in the commentaries regarding the current supply and demand of gold and silver.  Please take the time to read his work here:  Attack of the Comex Apologists.

Back to half-truths, distorted truths and willful omission of facts.  This chart was making its way around the internet in an attempt to prove that the Comex paper to reported physical ratios are not out of whack vs. historical highs:

ComexCrapThe facts that have been willfully omitted are these: In 1998, the Comex only reported total ounces, not registered vs eligible. Second, the total amount of gold reported at the time was only 1 million ounces. Finally, the comment in yellow was added by me. This denotes the infamous “Brown’s Bottom” when the Bank of England dumped 400 tonnes of gold on the market, marking what turned out to be the bottom of the bear market in gold.

About 5 years later, a hearing was conducted to find out why Gordon Brown unloaded half of England’s gold on the market.  This stunning full-truth with regard to the paper short position of the bullion banks vs. the available supply of gold to deliver into those contracts was revealed (Eddie George, BOE Governor):

“In front of 3 witnesses, Bank of England Governor Eddie George spoke to Nicholas J. Morrell (CEO of Lonmin Plc) after the Washington Agreement gold price explosion in Sept/Oct 1999. Mr. George said “We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.

Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K.”

When you shine the light in the right places, the truth emerges. Now we know that the Bank of England bailed out the Comex and LBMA in 1999. It will be interesting to see if a bailout is possible this time around, because the western Central Banks have been drained of most of their gold and the paper to physical leverage numbers are significantly larger by several factors than they were in 1999.

Comex Paper Precious Metals Open Interest Is Going Parabolic

Since the end of May open interest has risen 14.23% while gold basis the stock market close has fallen 2.69%. Gold has been battered by a powerful short-selling campaign. MKS Geneva last night furnished the colorful remark:  “Shorts grew 12% last week to a new all time high. The position is about 3.6 times the size of the last 20 years average!!” – from John Brimelow’s Gold Jottings Report

The price level and trading activity in the precious metals market – gold and silver specifically – has reached mind-blowing absurdity.  Make no mistake about it, the fact that the U.S. mint had to suspend sales of 1 oz Silver Eagles until at least early August is definitive evidence that the natural market function of price as a mechanism to balance supply/demand has been completely destroyed by the western Central Banks using the big bullion banks as their agents of manipulation.
As we already know, the silver open interest on the Comex has soared to preposterous levels to an open futures level which far exceeds the amount of silver produced by mines globally in a year:

Silver OI 062415 As you can see from this graph to the left, the open interest in silver is historically correlated with the directional price movement of silver.  This correlation blew up and the amount of paper silver open interest on the Comex began to go parabolic last summer, while the price continued to head south.  This is direct evidence that that Comex paper silver is being used to push down the price of silver.

In fact, as we all know from the work by SRSRocco, India finds the price of silver so attractive that it is on track to import a record a amount of silver this year.

The gold paper open interest on the Comex has now begun to go parabolic.  As recently as April 3, the total gold paper open interest on the Comex was 382k contracts, or 38.2 million ounces of gold.  As of yesterday – July 14 – the open interest in paper gold had soared to 462k contracts, or 46.2 million ounces.  This is a 21% increase in the amount of paper gold. In fact, China finds the price so attractive that it is on track to “consume” a record amount of gold this year.

To put the gold paper open interest in perspective, as of yesterday Comex vault custodians were reporting an alleged 482k ozs of gold in the “registered” account and 7.8 million in total gold.  The open interest just for the August front-month gold contract is 235k, or 23.5 million ounces.  This is 48x the amount of physical gold that has been made available to back the August open interest.  The total open interest in paper gold on the Comex is 600% greater than the amount of total gold that could potentially back that open interest.

To describe as “absurd” this imbalance between the paper gold and silver contracts on the Comex and the condition of the global supply/demand for physical gold and silver is an insult the word “absurd.”  This is nothing less than complete criminal and fraudulent manipulation of the gold and silver markets by elitists and bankers who are now officially above all Rule of Law.

As my friend and colleague, John Titus, has concluded after pouring over several transcripts from the 2009 FOMC meetings around the time that QE started and which were recently released at the beginning of 2015:

The more I learn, the more I realize that the Fed is nothing but a criminal enterprise and the guys at the top know it.   Everyone within breathing distance of top slots at the NY Fed is a criminal. Remember, the NY Fed shares space with the ESF even though the latter’s formally part of the Treasury.

The real underlying issue with this manic and blatant manipulation of gold and silver is yet to be determined.  But when Janet Yellen announces that the Fed is on track to raise interest rates this year, when the economic reports released daily show an economy starting to collapse, and when an obscure and opaque “military exercise” across the United States begins on July 15, 2015 – yes, Jade Helm begins today – and the S&P 500 spikes higher while the price of gold and silver are slammed – then you know your system is doomed.

It’s pretty obvious by looking at the numbers above that the bullion banks – JP Morgan, Scotia and HSBC – are using paper futures to loot the gold and silver on the Comex.  If that’s not the case then I would urge them to allow us to conduct a physical audit of their vaults.  Otherwise please explain how the mint can run out of silver.   It’s also quite obvious that the Comex is headed for a force majeur cash settlement of the open interest.  There is no other explanation.

Several years ago a good friend and colleague of mine and I both asserted that we would know they’re ready to let the system collapse when they let the Comex default.  I would suggest that we drawing close to that time.

When you see that trading is done, not by consent, but by compulsion–when you see that in order to produce, you need to obtain permission from men who produce nothing–when you see that money is flowing to those who deal, not in goods, but in favors–when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you–when you see corruption being rewarded and honesty becoming a self-sacrifice–you may know that your society is doomed.  – Ayn Rand, “Atlas Shrugged”

 

Comex Silver Is The Most Corrupted Market In History

The silver paper futures open interest is now officially over a 1 billion ozs., most of which represents a naked short position in silver.   Never in the history of the markets has any futures market been this extraordinarily disconnected from the amount of underlying physical commodity that is available to deliver against those contract open interest.

The only conclusion that can be drawn is that the Fed, Treasury and big banks are implementing the most extreme market manipulation exercise ever witnessed.  I shudder to think about what catastrophe is coming at us that they know about but we don’t – yet.

“James Mc,” a valuable daily contributor to Lemetroplecafe.com’s nightly “Midas” report commented last night on the Comex silver market in comparison to the CME lumber futures market:

Total North American lumber production for 2015 (est.) is 60 billion board feet. At an average of $400 mbf that translates into $24 billion dollars. Keep in mind this excludes the rest of the world’s lumber production, which could easily be double that amount. On the other hand total world silver mine production for 2014 was estimated by GFMS to be 877 million ounces. At $16 oz. that is a total of $14 billion. Silver OI is 45.45 times greater than lumber OI. with physical silver production being only a fraction of lumber production in dollars. Lumber futures O.I would have to be 100 times greater or more to compare to the outlandish oversized silver futures. Or, put another way lumber futures would have to reflect hedging 68 billion board feet, more than the entire year’s production for North America to be scaled to silver Any arguments for a higher silver O.I due to hedging for recycled and above ground silver supply are dwarfed by the stark reality of the above figures. To say the silver market is normal is like having referred to hurricane Katrina as a passing thunderstorm.

A long-time friend of mine who works with hedge funds in NYC thinks a Comex default is coming.  If that’s the case, it would make sense that JP Morgan, HSBC and Scotia – the primary Comex market-makers and Comex gold/silver vault custodians – are amassing a record level of naked-short interest in paper silver.

Why?  Because this serves the two purposes:

1)  these banks make enormous trading profits through their illegal manipulation of the gold and silver markets.  In fact, I don’t know about HSBC and Scotia, but in some past quarters JP Morgan’s commodities trading unit has been its only cash-profitable business segment.  I suspect this was largely from illegal trading profits in gold and silver futures trading.

2)  keeping the price of silver down via illegal manipulation enables these banks to accumulate physical silver at artificially low prices.  Obviously they know the truth about the real condition of the physical market. If you put on your “think like a criminal” hat, you would use the paper to push the price of silver down using paper – taking out trading gains on the market’s volatility – and you would be accumulating a massive hoard of physical silver because, once the Comex eventually defaults, both gold and silver will soar in price but silver will soar many multiples more than gold.

The Comex is headed for a default.  This means that the long side of the open interest will be settled in cash.  Of course, it takes a force majeure to trigger the cash settlement provision in the gold and silver contracts.  I can’t wait to see the nature of that force majeure event…

COMPLACENY

We are dealing with as heinous a suppression scheme as we have had to deal with all these years. While we have to deal with the here and now, there is no doubt in my mind there will be reckoning for all of this, as James Mc posits … especially in silver. The odds grow that reckoning will occur when least expected and it will be spectacular.  – Bill “Midas” Murphy, www.lemetropolecafe.com