JP Morgan took the bold step to “break a stigma” and announce that it planned to borrow from the Fed’s discount window. The discount window in the context of modern finance has evolved into an emergency source of liquidity. This is nothing more than an attempt at reverse psychology to cover up the fact that JPM is preparing for the eventuality that it will need to tap into emergency sources of liquidity like the Fed’s discount window.
The Fed’s “temporary” repo money printing operations are not doing the trick. The big banks are in trouble from the same type of bad lending decisions that led to the 2008 crisis, only this time it will be worse. Chris Marcus (Arcadia Economics) and I flush out exactly what this means in a short podcast:
There’s been an abundance of commentary on the net long position of the “Swap Dealers” in Comex silver futures per the COT report. As of the latest COT report, the Swap Dealers are net long almost 22k silver contracts. This is unprecedented. At the same time, the “Large Speculators,” the majority of which is comprised of the “managed money” (hedge funds) sub-component, are net short nearly 17k silver contracts. The data my business partner tracks goes back to April 2004. In that period of time, the Large Speculator category has never been short until February 2018.
On the surface, the silver COT report appears to be extraordinarily bullish. However, there’s a bigger picture not discussed by “COT” analysts that includes the other segment of the large “Commercial” category and the COT structure of gold.
The other “commercial” segment includes producers of silver, commercial “users” of silver (jewelers) and “merchants.” It would be naive to assume that the Comex banks do not throw a large percentage of their gold/silver short positions in to the this category. That would be within the CFTC regulations. Hell, JP Morgan was fined a little over $650k a few years when it was caught by the CFTC putting a portion of its trades into the “speculator” category of trader. This was not within regulations. $650k is a joke and would not deter Jamie Dimon from speeding on the Long Island Expressway let alone manipulating the silver market.
Currently the “Commercial” segment per the latest COT report is net short 2.6k contracts. Again, this is by far the lowest net short position in the Commercial category going back to at least April 2004 and likely ever. The closest the net short position has been before now was for the June 3, 2014 COT report, when the Commercial category net short in silver was down to 9.6k. Back then silver was trading at $18.80. It bounced briefly to $21 by early July then headed lower from there.
While the silver COT appears to be exceptionally bullish, it needs to be analyzed in the context of the gold COT structure. The gold COT structure currently, based on historical statistics, is neutral but trending toward bullish. I looked at data going back to the beginning of the current bull market cycle in the metals, which is commonly considered to be early-December 2015.
From the beginning of December to the latest COT report, the average large spec net long position in gold is 171k. The high was 315k (bearish) and the low was 9.7k (very bullish). For the Commercials as a whole, the average net short during that time period is 209k contracts. The high was 340k (bearish) and the low was 2.9k (very bullish). The low net short in gold for the commercials banks occurred in the December 1, 2015 COT report. This also corresponded with the low print in the large spec net long. This type of COT structure is the most bullish for both gold and silver.
Currently, the large specs are net long 166.5k gold contracts and the commercials are net short 188.8k contracts. You can see vs the averages over the time period that this is still neutral to bearish, but it’s trending in the direction of becoming bullish.
The other element for a bullish gold COT structure is open interest. A high open interest tends to correlate with a bearish COT structure – i.e. a high commercial bank net short – and a low relative o/i correlates with a cyclical low-point in gold. From December 2015 to present, the average o/i in gold has been 492k contracts. The high was 652k and the low was 357k. The net short of the commercials as percentage of the total o/i at the low-point in total o/i was 0.74% – again in the December 1, 2015 COT report. Currently the open interest is 493k which is about average. The commercial short position as percentage of total o/i is 38%. Again, about average for the time period.
I have noticed that the last two moves higher over the last two years have occurred with the total gold o/i in the 420-440k range. This would suggest that, minimally, the open interest needs to drop by 60-70k contracts before the gold COT structure can be considered favorable for a rally in the price of gold.
On average and in general, gold and silver are highly correlated in their directional movements, especially over long periods of time. Since 2001, it’s been my experience that major moves higher in the precious metals sector begin with gold taking off and tend to end with silver outperforming gold by a substantial margin. The numbers presented above would suggest that both gold and silver will not be set-up to embark on a major move higher until the both the total open interest in gold and the net short position in gold of the commercials banks declines by another 60-70k contracts.
In the context of my analysis and my view on methods used by the banks to manipulate the paper price of gold and silver on the Comex, in my pinion the silver COT report – though remarkably bullish on a stand-alone basis – is not as bullish as some analysts are presenting when both the gold and silver COTs are considered in tandem. At this point, I believe gold will lead both metals higher when the next big move begins. Once that move is underway, I’m highly confident silver contract short-covering by the hedge funds will send silver soaring.
After it was announced that the Fed gave the big banks a pass on their “stress” test, the TBTFs announced huge dividend and share buyback plans:
If the banks had properly marked to market their Level 3 assets and some of their riskiest non-Level 3 assets, would they have still passed the Fed stress test, which essentially places a stress-test “bar” on the ground and lets the banks step over it? Probably not. This would explain why JPM insiders have been dumping shares en masse over the last three months:
The “buys” are deceptive because those “buys” are the exercising of compensation options. The most aggressive sellers have been CEO/Chairman, Jamie Dimon; General Counsel, Stacey Friedman (hmmm…); and CFO, Marianne Lake (hmmm…).
With JP Morgan’s announced 90% increase in its share buyback program, the shares will have an even bigger bid in the market from shareholders into which insiders can dump.
The question is – rhetorical, of course – why would these insiders be dumping shares if the outlook for the Company’s earnings, stock price and financial condition was positive?
Gold didn’t “hit a low,” it was driven down by the bullion banks who are agents of the Fed, acting on the Fed’s orders…the price of gold is not determined in the market in which gold actually gets bought and sold, it’s determined in a paper futures market in which the contracts are settled in cash. – Paul Craig Roberts on King World News
The Comex is like a grade-B horror movie – night of the living dead. Zombies that wreak havoc on society but can’t be destroyed. The Comex is the consummate symbol of the United States. It embodies extreme fraud, corruption, wealth theft, market manipulation, regulatory capture, etc. It is the ultimate manifestation of the end of Rule of Law in this country.
Last week the “managed money” hedge fund segment of the Comex took on a record net short position in Comex paper gold. As reported to the CFTC from the CME bullion bank trading reports, hedge funds are now net short over 16,000 contracts representing over 1.6 million ozs of paper gold – over 46 tons. Conversely, the “swap dealer” segment – otherwise known as the bullion banks – have assumed a record net long position of 29.5k paper gold contracts.
Now, assuming we accept the COT report prima facie – and this can be a problematic assumption considering that the data originates from the highly corrupted bullion banks – whenever the hedge fund trader class net position has reached an extreme level in either direction, and the banks take the other side of that position, the price of gold has always eventually moved inversely to the hedge fund positioning.
Meanwhile, the amount of gold that has been declared to be available for delivery into contracts standing for delivery has diminished down to 138k ozs as of last Friday. Against the net short of the hedge funds, this implies that the hedge funds are short 11.5 ozs of paper gold for every ounce of real gold made available for delivery. If this ratio of paper to the real underlying commodity developed in any other commodity market the CFTC would step in an enforce the laws enacted to prevent this type of market manipulation.
The reason I now reference the Comex as a “Night of the Living Dead” zombie market is because this trading pattern between the bullion banks and the hedge funds has been in repetition since at least the time I began my involvement in the precious metals market nearly 15 years ago. It never received the kind of attention it gets now until after the big smash started in 2011. By then it was too late because the CFTC, SEC, Justice Department and Oval Office advisory staff had been stuffed with Wall Street’s emissaries, primarily of the Goldman Sachs and JP Morgan variety. It’s Wall Street’s version of using pedophiles to supervise the daycare school.
Based on history, it would appear that the hedge fund/swap dealer net position is indicating that the price of gold may be in for a wild ride higher at some point. But don’t expect this to happen immediately. I expect the hedge funds to get aggressive in trying to push the price of gold lower in order to “harvest” their short position. I mentioned to colleagues last week that this would explain the erratic, volatile intra-day moves in the price of gold we started to see recently.
Today is a good example, as gold traded up overnight – in the Asian physical markets referenced at the top by Dr. Roberts – only to be smashed just before data was released showing a collapse in U.S. manufacturing – data that should have been bullish for gold. However, if you want to trade on the side of the Government insiders – the bullion banks – now is a good time to buy the price smacks and sell the ensuing push higher. At some point the banks will decide to fleece the hedge funds once again and take the price of gold higher, forcing the hedge fund black boxes to cover their shorts.
Wash, rinse, repeat. You may ask yourself, how do you kill a zombie? As a market for the trading of physical gold and silver, the Comex is already dead. At some point, the entities who have stuck around to try their hand in the rigged paper game will either go broke or simply fade away. At that point, the bullion banks will be left to play only with themselves. I suspect, however, at that point the U.S. economic, financial and political system will be in outright collapse.
Gresham’s Law states that bad money drives good money out of the system. People will use inferior money in their daily “bartering” for goods, services, investments etc and hoard good money.
We are seeing Gresham’s Law work in the gold market, where eastern hemisphere Central Banks, investors and populations are in the process of hoarding all the gold the west will send their way in exchange for the constituent country fiat currencies. “Here, take our currency and convert it to dollars and sell us your gold.”
And the gold seems to disappear from sight. Can anyone hazard a guess how much gold the People’s Bank of China controls or where it’s safekept?
Recently my friend and colleague Craig “Turd Ferguson” Hemke – TFMetals Report – noticed an usual amount of gold was being removed from the “registered”/investor account in JP Morgan’s Comex vault. Last Friday, for instance, 24% of the eligible gold disappeared from JPM’s registered vault account and disappeared to destinations unknown: LINK
Again yesterday another chunky 160,750 ozs of gold fled the questionable custody of JP Morgan’s eligible account (click on image to enlarge):
The amount of gold removed yesterday represented 32% of the amount of gold remaining the eligible account after last Friday. In total, this entity or entities has/have removed 49% of the gold that was sitting in “investor safekeeping” section of JP Morgan’s Comex custodial vault.
We can only speculate what might of “spooked” the entitled owners of that gold to take it away from the Comex.
However, I will say this confidence: whomever removed that gold decided that they no longer trusted JP Morgan to safekeep it. It’s interesting because the Comex offers storage rates that are a significant discount to market rates to investors who take delivery off the Comex and use the Comex vaults for safekeeping.
Whatever the case may be, nearly 50% of ALL of the gold in Comex vaults has been removed since 2011 (source: 24hgold.com, edits are mine – click to enlarge):
I have to give credit to my friend/colleague Craig “Turd Ferguson” Hemke – TF Metals Report – for tweeting this piece of information. I don’t monitor the Comex precious metals vault reports everyday.
Yesterday 24% of the “eligible” gold being held – supposedly – in JP Morgan’s Comex gold vault left the premises (click to enlarge):
Briefly to review, the “eligible” gold is the gold that is being “safe”kept at the Comex by investors who took delivery of gold. The Comex actually offers a big discount to the market rate charged for safekeeping to investors who keep their gold in the confines of Comex bank vaults.
I think it’s safe to say that either a big investor who took delivery of the gold and was “safe” keeping it in JPM’s vault decided he would rather provide his own means of safekeeping – understandably so. OR, it’s entirely possible that the gold was hypothecated and the 100 oz. Comex bars were shipped to Swizterland where they will be refined into the kilo bars used on the Shanghai Gold Exchange.
Whatever the case might be, the amount removed was 158k ozs, or a little over 4 tonnes. It’s amusing to contemplate this in the context of when Germany asked for its gold being held at the Fed, it took a year for the Fed to ship 5 tonnes…
Craig points out the amount of gold removed from JP Morgans eligible vault is greater than the total amount of gold in all Comex vaults – as reported – that is classified as being “registered,” or available for delivery. You may note that I keep using the modifier, “as reported.” If you read the area shaded in yellow at the bottom of the Comex report above, you’ll understand why.
With the bubble in Comex paper gold that has formed this year, there is a high probability that anyone who “safe”keeps their gold at the Comex is facing the increasing likelihood of losing the ability to get that gold delivered upon request. Just ask Angela and Jens Weidmann (head of the Bundesbank)…
The more I learn, the more I realize that the Fed is nothing but a criminal enterprise, that 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 Exchange Stabilization Fund/Working Group on Financial Markets even though the latter is formally part of the Treasury. – John Titus, one conclusion from reading the 2009 FOMC transcripts
The only difference between Greece and the United States is that the United States can unilaterally print its own money – money that enables unlimited Government funding and allows the big banks to remain solvent. The actual process of money printing and debt creation is implemented by the Federal Reserve and the Too Big To Fail Banks that operate as agents of the Fed.
John Titus is in the process of producing a video about the criminality of the Federal Reserve and its member banks. His researched is derived from reading several of the transcripts from the 2009 FOMC meetings during the early stages of the QE programs. While the “minutes” of the Fed meeting – released three weeks after an FOMC meeting – summarize the FOMC’s policy stance, the transcripts are the most detailed record of FOMC meeting proceedings. The release of the transcripts is delayed for five years.
What comes out loud and clear from the transcripts is that not everybody is on board with policy decisions. For example the purchase of mortgage-backed assets. There’s lot of uneasiness among Fed members but ultimately they all go along with the plan. I’ve read a lot of transcripts – probably thousands – and what comes out of the Fed transcripts is that the plan has been decided on beforehand. The FOMC meetings are only there to hand down that plan, to discuss the plan, to discuss how to implement the plan and to prop up the idea that FOMC meetings are some sort of democratic process. – John Titus
I asserted in 2003 that the elitists running this country would hold the system up with printed money until they have swept every last crumb of middle class wealth off the table and into their own pockets. “Middle class” for this purpose is defined as anyone who does not have enough cash laying around and the appropriate connections to buy their own Congressman. The cut-off level of wealth for this is probably about $100 million in non-real estate wealth.
I always thought that the means to accomplish this was money printing and devaluation of the currency. But true extraction mechanism is debt. Banks and bankers create debt and make it readily available to their victims. It’s no different that dealing heroin. Get your target addicted and then keep selling it to the victim until it dies.
The bankers gained economic and political control in 1913 when the Fed was founded. Ever since then, there’s been a gradual transfer of wealth from the 99.9% to the .1%. There’s also been a slow, methodical dismantling of the Constitution and Rule of Law. In fact the Fed, the big banks and the big corporations have successfully pulled off a de facto coup d’etat of the U.S. Government.
I don’t consider the U.S. Government to be a sovereign Government because if you look at the sovereign function that a Government performs – money printing for instance – we’ve outsourced that to private banks (the Fed is a private bank). There are hardly any sovereign functions left in the U.S. that are performed by the Government. – John Titus
Once the middle class ran of out real income to continue buying “things” – like houses, cars and consumption gadgets – the banks began to make debt readily available. Ever since Nixon closed the gold window, thereby completely removing real money from our economic system, the level of debt has increased at an increasing rate every decade. Over the last decade the total amount of debt in our system – public and private – has gone parabolic.
Even worse, the system of Rule of Law has been usurped by “Rule of Man.” The elitists running the system are outright criminals who are immune from prosecution. Think about it: Eric Holder as Attorney General -the chief prosecutor in the country – stated that “some banks are too big to prosecute;” the CEOs of the five big banks collectively admitted to committing felonies, yet none were prosecuted; the leading candidate to be the next President – for now – has openly committed felonies and treason. These people and corporations are above the law.
While John Titus is still in the process of researching the 2009 Fed transcripts for his video, he’s already concluded that the Fed is a criminal organization that is orchestrating the takeover of this country and is enabling the process of complete wealth extraction from the middle to class:
The basic point of the video is that the Fed will give as much money as the TBTF banks need in order to stay solvent and pay bonuses. The Fed will also do whatever it takes to remove worthless assets, infected by criminal fraud, from big bank balance sheets. The Fed is also monetizing U.S. debt, which it knew as soon as QE started.
The Fed does these things knowing full well that these acts come at the direct expense of the economy. The logical outcome is what’s happening in Greece, where the powers that be insist that debt–which they know to be wholly fraudulent and which cannot be repaid–be paid back, with blood money if necessary. The mere existence of TBTF banks is inconsistent with any number of things, including the Rule of Law and national and individual sovereignty.
The chief enabler of the Greece-ification of the U.S. is, without question, the Federal Reserves and the psychopaths running it…Our choice is stark: We can hang them for treason, or they will kill us. That process formally began with the 2008 bailouts. – John Titus
Financial regulators around the world have recognized an immediate and pressing need to address possible regulatory protections in the OTC derivatives market. – Brooksley Born, 1998 as Chairman of the CFTC – LINK
(Please note: this scheme too will blow up in their face just like Long Term Capital, Enron, Bear Stearns, Lehman, AIG/Goldman. The taxpayers will be bailing out the banks – and now we know why Citigroup wrote the legislation that enabled banks to move their OTC derivatives positions to their FDIC insured units – but gold and silver will go parabolic)
Back in the late 1990’s, the then head of the CFTC – Commodities and Futures Trading Commission, the Government entity which is supposed to oversee futures and derivatives markets (enforce the laws in place to prevent criminal activity in these markets) – Brooksley Born embarked on an effort to impose oversight and regulation on the burgeoning OTC derivatives markets. We all saw back then the dangers they impose on the system when Long Term Capital imploded and almost took down the global financial system.
I was a junk bond trader back then and vividly remember the entire affair. In fact, Bankers Trust was the pioneer in OTC derivatives and it also had to pony up the most amount of money to bail out the system from Long Term Capital. I also had been involved in using OTC high yield derivatives – unregulated – to hide large, risky and illiquid junk bond positions from the Bankers Trust risk management team. We always did this right before the period in which the bank began calculating bonus pools. In other words I know first-hand the many ways in which OTC derivatives can be used in corrupt ways to game the system and squeeze enormous profits from the markets. “Markets” meaning, the people on the other side of your trade.
Of course, Robert Rubin, Larry Summers and Alan Greenspan put on a full-force lobbying effort to destroy Ms. Born’s effort in Congress and the rest is history. OTC derivatives are not only financial nuclear weapons of mass destruction, they are right now about the only source of real cash flow for the big banks.
But they are also used to inflict criminal manipulation on the gold and silver markets. Dr. Paul Craig Roberts and I have written an article outlining the most likely way in the which the big big bullion banks – primarily JP Morgan and Citigroup – are implementing the recent massive spike up in gold and silver OTC derivatives in order to manipulate and suppress the price of gold and silver. Bear in mind that, thanks the Rubin/Summers/Greenspan triumvirate, we have absolutely no way of knowing exactly how these securities are structured. And yet – as we’ve seen with Long Term Capital, Enron, Bear Stearns, Lehman, AIG and Goldman – they can catastrophically effect our lives financially.
Are Big Banks Using Derivatives To Suppress Bullion Prices?
Paul Craig Roberts and Dave Kranzler
We have explained on a number of occasions how the Federal Reserves’ agents, the bullion banks (principally JPMorganChase, HSBC, and Scotia) sell uncovered shorts (“naked shorts”) on the Comex (gold futures market) in order to drive down an otherwise rising price of gold. By dumping so many uncovered short contracts into the futures market, an artificial increase in “paper gold” is created, and this increase in supply drives down the price.
This manipulation works, because the hedge funds, the main purchasers of the short contracts, do not intend to take delivery of the gold represented by the contracts, settling instead in cash. This means that the banks who sold the uncovered contracts are never at risk from their inability to cover contracts in gold. At any given time, the amount of gold represented by the paper gold contracts (“open interest’) can exceed the actual amount of physical gold available for delivery, a situation that does not occur in other futures markets.
Steve St. Angelo wrote an interesting article reporting that U.S. silver imports have mysteriously jumped nearly 44% during Q1 2015 vs Q1 2014. As he details, the big increase is not explained by the demand numbers for industrial silver, silver eagles or the Comex warehouse vault silver stocks. (click on graph to enlarge; source: SRS Rocco Report)
I’m wondering if perhaps JP Morgan might be the source of the import demand. JPM is the custodian of the SLV vault. As of the latest data available from the NYSE, the short interest in SLV is 20.6 million shares. This is an 11% jump in short interest over the previous week’s report. The short interest represents 20.6 million ounces of silver that are theoretically/potentially owed to the SLV Trust. If large holders of SLV decide to turn in their shares for redemption of silver bars – and assuming they are not blocked from doing so by the Trustee – which I know is happening with GLD – the SLV Trust would find itself in an awkward position if it can’t honor deliveries.
Furthermore, JPM is also thought to be the largest source of short interest in Comex futures. Many of us have been postulating that, because of the trading behavior in silver over the last 6 months or so, it appears as if there is a physical supply vs. delivery demand problem brewing in silver. This group includes myself, GATA’s Bill Murphy and Sprott Asset’s John Embry. James Turk has pointed out that silver is currently in backwardation in London, which means there is a short term shortage of physical silver available for delivery into LBMA forward contracts.
To put the Comex silver open interest in perspective, as of the latest open interest report, there were 116,606 open contracts for the July delivery month. This translates into 583 million ounces of silver. As of the latest warehouse stock report, there were 60 million ounces of silver available for delivery in the “registered” account. click to enlarge:
In other words, nearly 10 ozs of paper silver has been sold to buyers for every ounce of real silver that is available for delivery. This is just for July. You don’t have to be Einstein to understand the potential force behind a short squeeze if just 20% of the longs on the Comex decide to stand for delivery in July because they are nervous about the dollar/economy.
Between the short interest in SLV, the high probability that a significant portion of SLV silver has been hypothecated in some form, and the enormous naked short interest position in Comex silver futures vs the alleged amount of silver stock available to deliver on the Comex, it’s entirely possible that a huge short squeeze in physical silver is fomenting. Perhaps it was JP Morgan and other bullion banks who were responsible for the enormous amount of silver imported into the U.S. during Q1 2015 as a means of partially covering their naked short position in silver via Comex futures, SLV short interest and OTC silver derivatives.
LONDON–JPMorgan Chase & Co. (JPM) has become the seventh direct participant in the twice-daily auctions to set the LBMA Gold Price benchmark, according to the price administrator, Intercontinental Exchange Inc. – LINK
The more things “change,” the worse they become. After Deutsche Bank dropped out of the old LBMA gold fix, the remaining “price fix” banks were: HSBC, Barclays, Bank Nova Scotia (Scotia-Mocatta) and Soc Gen.
With JP Morgan now announced as the seventh direct participant, here’s the list of participants: HSBC, Barclays, Bank Nova Scotia, Soc Gen, UBS, Goldman and JPM.
Can someone explain to me how this is supposed to be an improvement over the old fix? Does anyone trust any of these banks? All seven of them would have – and should have – collapsed in 2008. The world would be a better place if that had been allowed to happen.
All of them (except somehow maybe Goldman) have been prosecuted and fined for manipulating interest rate and foreign exchange markets. Is anyone really stupid enough to believe that these banks will conduct the business of fixing the gold price in London in a fair and honest manner.
The fact that the new system is now electronic does not “fix” anything. In fact, as we have seen ad nauseum with anything and everything connected to the cyberworld (think: HFT trading) it’s easier to rig something electronically than manually.
I have heard conflicting accounts about reasons China does not have a seat on the new gold price fix committee. The most credible is that China did not seek to have bank representation. Instead, China is going to roll out its own yuan-based gold fix mechanism sometime later this year.
Myself and all of my colleagues who have been researching, studying, trading and investing in the precious metals sector since at least 2001 (GATA founded in 1998) all agree that the last three years have seen, by far, the most aggressive, egregious and blatant effort by the Fed/U.S. Government – in conjunction with the EU Central Banks – to manipulate the precious metals market in order to support the massive money printing schemes being used to finance Government spending, keep the banks from collapsing and finance illegal wars.