If I can bring all of this together, it will go a long way toward proving correct Ted Butler’s theory on JPMorgan’s current corner of the Comex gold futures market.
So, let’s start with Uncle Ted and his assertions. Recall that Ted is a first-rate analyst who has been trading commodities for about 40 years. He has paid particular interest to the silver manipulation for the past 20.
Using the CFTC-issued weekly and monthly data (Commitment of Traders & Bank Participation Report), Ted has followed along over the past eight months of position changes and, over that time, the changes have been dramatic. As you know, The Bullion Banks were caught heavily short at the initiation of QE? last autumn. I contend that this entire manufactured correction scheme was initiated by The Bullion Banks to give them an opportunity to get out from under their naked short positions and move net long. Ted has concluded that it’s not the Bullion Banks per se. Instead, the scheme was initiated by JPMorgan solely for the benefit of JPMorgan and, from a net short gold position in excess of 50,000 contracts last December, JPMorgan has now transitioned into a net long gold position of more than 65,000 contracts. IF THIS IS TRUE, there can be absolutely no doubt as to:
I did not set out to prove or disprove Ted’s assertions. After following the Comex gold and silver deliveries these past 60 days, simple curiosity led me to do some research on recent delivery patterns. What I found not only piqued my interest, I think it proves Ted correct. And again, IF TED IS CORRECT, then there is most certainly a very big move coming in gold.
So, let’s start here: After taking into their house account (again, this means stopping the metal to themselves, into their own, proprietary account) 280 of 3,922 Dec 12 silver deliveries, 970 of 2,526 March 13 silver deliveries, a big fat zero of 3,416 May 13 silver deliveries, JPM stopped to themselves 2,824 of the 3,444 July 13 silver deliveries. That’s 82%. For obvious reasons, this anomaly got my attention.
As I’ve been chronicling here all month, this trend continued into the August 13 gold delivery period. Last Thursday alone, the final day of August deliveries, the JPMorgan house account took down 154 of the 164 Aug13 gold deliveries. This brings their monthly total to 3,151 of the 4,075 contracts delivered. That’s 77.3%! What’s more, after the initial surge of 1,962 deliveries on the 1st and 2nd of the month, the JPMorgan house account claimed for itself 1,945 of the 2,113 remaining deliveries. That’s 92%!
With this as inspiration, I went back and reviewed the previous delivery months for gold on The Comex. These delivery months in 2013 have been February, April, June and now August. What I found is startling.
Let’s start with February. Before we begin, recall that for every buyer, there is a seller…and…for every person or entity taking delivery, there is an issuer from whose vaults that metal will flow. Further, keep this in mind…If you have been naked shorting paper contracts all month, you stand the risk that the entity on the other side of your trade will stand for delivery. So, it follows that, when we see one firm taking consistently taking delivery and another firm consistently issuing the metal, we can deduce who has been shorting all along and who has been buying. Does that make sense? I hope so. If it doesn’t. then please re-read that info before proceeding. It is critical that you understand this.
OK, back to February. During that month, the Feb 13 contract was in its delivery period. What initially caught everyone by surprise was the sheer volume of deliveries. After just 3,253 in Dec 12, a month which is usually one of the biggest delivery months of the year, the delivery total for February surged to 13,070. Of that total, the Deutsche Bank house account took 5,917 and the HSBC house account took 4,879. Between the two of them, they accounted for 82% of all Feb deliveries. And just whom was issuing this metal? JPMorgan. For the month, JPM issued 7,854 of the 13,070 delivery requests. That’s 60%. Also getting in on the act was Scotia. They got clipped for the issuance of 3,644 contracts. That’s 28%. So, the DB and HSBC house accounts took 82% of the deliveries while the JPMorgan (house and customer) and Scotia house accounts supplied 88%. And don’t forget, this was a lot of metal! Thirteen thousand and seventy Comex contracts is 1,307,000 troy ounces, which equates to 40.6 metric tonnes.
Suddenly, the deliveries for March surged, too. Instead of the moribund 500 or so settlements that we typically see in this “non-delivery” month, March 13 saw an incredible 4,229 made…more than last December! I’m quite certain that that has never happened before. So what happened? Why was the March total about 3,000 to 3,500 more than typical and expected? Keep reading…
After getting clipped for 3,644 deliveries in February, Scotia immediately went on to warpath to get that gold back. For the month of March, the Scotia house account took in 3,383 deliveries while at the same time issuing 179. All totaled, Scotia net deliveries were 3,204 of the 4,229 deliveries for March. That’s 76% and, if you take that away, you’re left with just the typical 1,025 March deliveries. (Actually, it’s not that typical. The Barclays customer account took 834 of the 1,025.) Oh, you’re probably wondering which firm provided the metal for all those deliveries? JPMorgan. For March, JPMorgan issued 1,813 out of their house account and 2,209 out of their customer account. That’s a total of 4,022 or 95% of all March deliveries.
The next month is April and, once again, it’s a delivery month. The surge in total deliveries continued as 11,632 contracts were delivered to eager buyers. Of those, HSBC was again the big winner with 3,954 deliveries into their house account. Scotia took 3,292 and Barclays got in on the act with 1,276. Between the three of them, these proprietary house accounts combined for 73% of all April13 gold deliveries. And who got stuck with the bill? DB paid out 992 and Scotia paid out 595. This left the balance with none other than JPMorgan and they issued 9,690 contracts or 83%. 5,990 came out of JPMorgan house and 3,700 came out of their customer accounts. Again and just for fun, 9,690 Comex settlements means that JPMorgan had to ship out another 969,000 troy ounces or 30.1 metric tonnes.
So now it’s May and, remarkably, the trend of deliveries in traditional non-delivery months continues and, whaddayaknow, it’s a near-repeat of March. Of the 3,050 total deliveries in May, the Scotia house account took 1,746 or 57%. And guess who provided the metal…again? JPMorgan. This time they got stuck providing 97% of the metal or 2,948 of the 3,050 deliveries. What’s more, they issued the vast majority of this out of their customer account, which was raided for 2,781 of the 2,948 contracts. Again, “customer” gold is metal held on deposit for JPMorgan customers. This is registered and eligible gold and, as we’ve seen for years, JPMorgan is able to shift it around wherever they see fit. (And who are JPMorgan’s “customers”? Well, wouldn’t you like to know?…)
Finally, this trend repeated one more time during the delivery month of June. For the month, 9,869 contracts were delivered. Once again, HSBC grabbed the lion’s share, moving 4,935 (almost exactly half) of the deliveries directly into their house account. The Barclays house account took 2,000 and, for the first time since last December, the JPM house account claimed 547 or 5.5%. Issuing? You guessed it. JPMorgan issued 7,425 or 75% while Barclays and DB added about 1,400.
So, through adding all of this together we get this. For the 3 delivery months of Feb, Apr and June plus the traditional non-delivery months of March and May:
HSBC House Account: 13,768 deliveries. Total issuance: One. Yes, you read that right. One.
Scotia House Account: 8,932 deliveries. Total issuance: 4,259
DeutscheBank House Account: 5,918 deliveries. Total issuance: 1,746
Barclays House and Customer: 5,384 deliveries. Total issuance: 908
JPMorgan Customer: 1,444 deliveries. Total issuance: 16,758
JPM House: 547 deliveries. Total issuance: 15,181
OK, now before we go any further, I want you to take a second and review this excellent piece by Mark McHugh from back in April. Not only had he spotted this trend, he also goes on to explain how and why the deliveries out of the “customer” account should almost always match.There should not be a significant disparity. Jamie Dimon Has Issues (or Meet The Idiot Selling Gold)
Can you see what has transpired here?
Desperate to cover and eliminate their 50,000 contract short position but not wanting to do so through the actual buying of futures contracts for fear of disrupting the building price collapse, JPM decided to eliminate most of the position by settling and closing the short contracts in physical metal, instead. They likely made this decision in the expectation of re-acquiring the metal in the near future at lower prices. So confident were they in this eventuality, they even used customer gold to settle more than half of these obligations.
The month of June marked the bottom for the manufactured “correction” with price beginning the month at $1390 before trading down to a low of $1179 and closing out the month at $1224. Price has since continued to recover to a last of $1375.
Not coincidentally, June was also when Uncle Ted first noticed the change of position for JPMorgan and he reported it in early July after reviewing the Bank Participation Report changes from June. Ted got me all worked up so I did some of my own research and wrote about it here. The gist of it is this: After years of being net short, the U.S bullion banks were net long, so much so that on the July BPR, they were suddenly net long almost 45,000 Comex gold contracts! This trend then continued onto the August BPR which showed the four largest U.S. banks to be net long an astounding 59,473 contracts.
It’s important to note here that the BPR does not provide specifics. It simply aggregates the positions of the four largest U.S. bullion banks and the 20 largest non-U.S. bullion banks. So, it’s impossible to say with certainty how the 59,473 contract net long position is divided. But consider this:
On the BPR dated 2/5/13, the 4 U.S. banks had a combined net short position of 69,300 contracts. After five months of deliveries and a $500 price drop, the 4 banks had flipped to 59,473 contracts net long. Now, go back up and reconsider all of the delivery totals listed above. Can you connect the dots??? If not, I’ll do it for you.
JPMorgan decided late last year to rig the gold market lower in order to create the ideal conditions under which they could flip a 50,000 net short position to a sizeable net long position. Price, delivery notices and the CFTC-supplied reports document that they accomplished this feat by covering and delivering shorts while at the same time initiating and buying longs. They have no doubt been on the buy side of the record-setting Large Spec selling: They Better Pray There Is No Short Squeeze…
And here is where it begins to come together…
If this is the case, and JPMorgan is now net long a massive amount of gold futures, we should expect a complete change in the recent delivery pattern on The Comex. Instead of JPMorgan being the primary issuer, they should be the primary stopper. Additionally, instead of the other banks being the stoppers, they should now be the issuers, particularly the non-U.S. banks as the August BPR showed them to have a net short position in excess of 22,000 contracts.
And what has happened this month? Exactly that! As stated above, of the 4,075 total contracts deliveries in August, and noting the huge dropoff from the volume of the three previous delivery months, 3,414 were stopped by JPMorgan with 3,151 specifically designated for the JPM house account. And which firms have been issuing? Deutsche issued 1,116, Barclays has done 447 and Scotia accounted for 463. That’s a total of 2026 or 49.7%. Note that all three are non-U.S. banks!
To me, this proves that Ted is correct. Not only is JPMorgan net long the entire 59,473 shown on the August BPR, their position is likely even higher, offset in the net total by a net short position held by the other three U.S. banks included in the report.
And now…finally…here’s the rub. The Big Kahuna. The Grand Finale. JPMorgan is likely going to want back most, if not all, of the 3,193,900 ounces of gold that they delivered earlier this year. (16,758 customer + 15,181 house = 31,939 contracts = 3,193,900 troy ounces = 99.341 metric tonnes of gold) But the other banks aren’t budging…at least not yet. There were only 4,075 total deliveries in August! And note that HSBC has taken delivery of 13,768 contracts so far in 2013 while delivering just ONE. And who is HSBC??? Yes, they’re an English company but what do the “H” and “S” stand for? Do you really think that they are going to be in any hurry to return this 1,376,700 ounces of gold to The Comex and JPMorgan??? I’d say that this is pretty unlikely. Think about it. If HSBC would have simply played ball and handed back to JPMorgan the 4,935 contracts that it settled to itself in June, total deliveries for August would have been at 9,000 not 4,000, a pace that would have matched February, April and June. Instead, total delivery volume came in at just 4,075 and JPMorgan was left grasping to deliver any contract it can get its grubby little hands on as the final two delivery days saw JPM House stop 395 of the 419 remaining deliveries (19 out of every 20).
So, most importantly, what happens next?
Right now, the total open interest for the typically slow delivery month of October is just 23,758. Of that total, how many do you think are held long by JPMorgan? 5,000? I’ll guess we’ll see when the deliveries begin next month. More significantly, the total open interest of the December contract stands at 229,838 (that’s 60% of the entire Comex gold complex) and this is where JPMorgan likely holds the majority of its net long position. If that’s correct…and it most likely is…what the heck is going to happen in December? Is JPMorgan going to simply roll into the Feb 14 and the Apr 14 OR are they going to stand for delivery AND, if they stand for delivery, are they going to attempt to extract 20,000 contracts or more worth of gold from the other BBs? And if the other BBs get wind of this, are they just going to sit idly by and wait to deliver or will they begin to move net long before it even gets that far? And then you’re only left with Spec Shorts who don’t have the capability to deliver 2,000,000 ounces of gold because they don’t have it. They’re just short the paper!
All of this could and should set off a buying frenzy/short-covering spree like no one has ever seen. Not only could and should price move higher in the weeks and months ahead, it should move dramatically higher, catching nearly everyone (except the readers of this site) by complete surprise.
Of course, all sorts of unforeseen events could come along and derail this plan so caution is always warranted. War could erupt in the MENA. Another Financial Collapse could materialize. Maybe India really will dump 200 metric tonnes onto the market. Any of these things could happen and nullify this forecast. However, I firmly believe that it is highly likely that this plays out almost exactly as I’ve described above.
I hope you’re ready. Prepare accordingly.
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