Tag Archives: Comex open interest

Gold And Silver: Something Different Is Occurring

JP Morgan, at least according to the daily Comex warehouse report, added over half a million ozs of silver to its “historic” stash of silver at the Comex:   TF Metals Report.  It would be even more interesting to see an actual independent accounting of that specific metal which would track the serial numbers on the bars to the legal owner of title.

I’ve been hedged in my mining stock portfolio since early September.  The signal for me to hedge is the reliable Comex bank “net short” position as reported in the weekly Commitment of Traders report. Since late summer, the bank net short position, and the corresponding hedge fund “managed money” net long position, has been at an extreme level.

Historically this is the signal that the Comex banks will implement what I call a “COT open interest liquidation” take-down of the gold/silver price using Comex paper to trigger hedge fund stop-loss positions.  This enables the Comex banks to cover their shorts and print huge profits. It’s also illegal trading activity but that’s for another day.

In early September, in “eyeballing” the gold chart in conjunction with the historical COT data I have set up in a spreadsheet back to 2004 , I figured that the open interest – which was in the high 500,000’s at the time – needed to come down at least 100-150k contracts. I thought it would take a price take-down from $1320 to $1230/$1240.

But something different is occurring.  Two months is usually plenty of time for the banks to work their price control “magic.”  The hedge I am using (JDST in-the-money calls) minted money up until two weeks ago.  But the open interest has been “stuck” in the 520k area (plus or minus).  Furthermore, the ability of the banks to slam the price seems limited, at least for now.  As an example, last Friday out of nowhere around 10 a.m. EST the price of gold was slammed for $10.  There was a notable absence of any specific news event or technical signal which might have triggered the massive selling.  (click on chart to enlarge)

Unloading on the price of gold like this on a Friday, after the rest of the trading world – and specifically the physical-buying eastern hemisphere markets – has closed for the weekend, is typical.  What is not typical, however, is the reversal of the price of gold which occurred the next trading day (Monday).  Usually a shock and awe price-attack, like the one that occurred on Friday, is followed up by a few days in a row of price declines.  I thought this would be the progression which would cause open interest to liquidate in a manner the banks would use to covered their shorts as the hedge fund puked out their longs.

The open interest in Friday declined by only 4.9k contracts.  Typically a “shock/awe” hit would have removed at least 10k of open interest.  Based on the latest COT report, the bank net short position stubbornly persists at an extreme level.   Open interest as of yesterday also persists at a high level.

Another typical indicator that the banks are trying to push the price of gold lower is the repeated “false news” reports that spin out of Bloomberg News regarding India’s demand for gold (Gold Import Slump in India).  However, based on the high ex-duty import premiums which correlate with India’s level of import demand, India’s legal importation of gold in October was at least normal for the month. It also followed an extraordinary level of importation in September.  YTD through the end of October, Indian gold imports are up 91% vs the first 10 months of 2016 (I track import premiums in India via John Brimelow’s Gold Jottings report).

I am still hedged.  As I asserted to my subscribers in last week’s Mining Stock Journal, although I still am mentally braced for one more aggressive attack on the price of gold that will enable the Comex banks to book profits on their collective net short position, I’ve started evaluating the possibility that the precious metals could start to launch higher in spite of the large bank short. In other words, it might start to get interesting in this sector.

Another signal for me that something unusual is occurring is the fact that junior miners have started popping in price again at the release of positive drilling results. For instance, yesterday one of the juniors I feature in my Mining Stock Journal jumped 17%. This is behavior coming from the juniors that has not occurred since last summer and mining stocks do not exhibit bullish trading behavior if the market is anticipating another leg down in gold/silver prices.

Something different – at least for now – is going on.  Maybe it’s related to smart, big money knowing that the world is on the cusp of rampant, uncontrollable price inflation after the unprecedented money supply inflation of the last 9 years. And, in reality, the money supply inflation began with Greenspan in the late 1980s/early 1990’s. The U.S. money printing has been going on since Nixon closed the gold window and it went semi-Weimar in 2008-2014. The U.S. exported its inflation with the strong dollar policy and reserve status of the dollar. That has changed. The BoJ and the Peoples Bank of China have been printing money the last few years like a meth addicts on steroids. The ECB is a close third.

This monetary inflation was contained when it was just the Fed and maybe the BoJ printing in volume.  Now the world is drowning in printed fiat currencies of every flavor.  Price inflation is on the cusp of breaking out furiously in all currencies.  This will translate into a furious break-out in the price of commodities, especially physically deliverable gold and silver bullion.

True economic inflation is defined as the increase in money supply in excess of wealth output. The supply of money exceeds the supply of “widgets.” Eventually the price of  widgets has to go higher. We are at that point. I’m talking about parabolic price increases, which have already been manifest in global stock and real estate prices.

The graphic to the left suggests that the global economic system has reached a “tipping point” at which rapidly accelerating price inflation is about to emerge.  That price inflation, combined with inexorable and severely negative real interest rates, functions as precious metals rocket fuel. Currently commodities are extraordinarily undervalued relative to the Dow. In fact, going back to 1917, there were only two prior periods when commodities were extremely undervalued vs. the Dow – the late 1920’s – early 1930’s and during the 1960’s. Both of those times, the U.S. dollar was significantly devalued vs. gold. In November 1934, FDR revalued the price of gold by 75% vs. the dollar, from $20 to $35. The market forced the devaluation of the dollar vs. gold after Nixon disconnected gold from the dollar in 1971.

Since 1971, the dollar has lost 80% of its purchasing power vs. a generic basket of goods. In 1971 it took $35 to buy 1 oz of gold. Today it takes $1271. That’s a 97% decline in the purchasing power of the dollar vs. gold. Here’s the funny thing about the dollar’s eventual fall to zero (per Voltaire and history), the last few percentage points before a fiat currency completes its collapse will produce the biggest nominal price rise in gold. Just look at Weimar Germany as an example. In January 1922, an ounce of gold was worth 1,000 German marks. By November 1923, when the mark collapsed, an ounce of gold was worth 100 trillion marks.

A portion of the above commentary comes from the latest issue of the Mining Stock Journal.  This subscription service presents in-depth market analysis/commentary as well as mining stock investment ideas.  I try to find junior miners before the “crowd” discovers them but I also incorporate relative value ideas in the large cap mining stock space.  You can find out more about this service here:  Mining Stock Journal.

Silver – The Only Commodity 66% Cheaper Than 37 Years Ago

Silver has gone from being the cartel’s kryptonite to being its LHC, or Large Hadron Collider. There are a lot of theories on what is going on with silver but the reality will probably be something even more fantastic. I keep getting back to lumber by way of comparison. The OI in silver is 55 times higher than in lumber, yet the global physical lumber market by dollar volume is actually higher. – quote from LeMetropole Cafe’s “Midas” Report

Those of us who have studied and traded silver for a long time (16 years in my case), have concluded that the Western Central Banks have painted themselves into a corner with their multi-decade effort to control the price of silver. Central Banks ran out of silver to unload on the market a long time ago. As such, they’ve had to resort to using paper derivative silver in the form of Comex futures, LBMA forward and OTC derivatives in their effort to cap the price of silver. In the last year, the amount of paper silver sold short against the available supply physical silver has grown into an astronomical number. At this point the banks can only pray that less than 1% of the longs each delivery period will continue to settle the contracts in cash…

“As a fiduciary, to the extent that you own gold and are going to own it a long time, it is not a trade….in the COMEX warehouse they had $80 Billion of open interest, and $2.7 Billion of deliverables….thats an easy one, you go get it.”  -Kyle Bass

Kyle: “What if 4% of the people want delivery?”
COMEX Delivery Manager: “Oh Kyle that never happens. We rarely ever get a 1% delivery.
Kyle: “Well, what if it does happen?”
COMEX Delivery Manager: “Oh, well price will solve everything.”
Kyle: “I said thanks, give me the gold.”

Here’s the link to that interview with Kyle Bass: “I’ll Take My Gold, Please”

The Daily Coin chatted with GATA’s Bill “Midas” Murphy about the current degree of manipulation in the silver market. The banking cartel is trapped, in a sense. The only resolution of this dilemma is a much higher price of silver – the free market solution – or war:

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