We monitor the daily open interest changes in Comex gold and silver. We
also wait each Friday for the latest Commitment of Traders report. Once a
month, however, we also get the Bank Participation Report and, though it
might be complete garbage and full of lies, we also need to consider this
report for some historical perspective.
We've written about these CFTC-generated reports so many times, it would
be impossible to link every post. However, nearly every post began with these
bullet points. Here they are again, just so that we're on the same page:
- The CFTC's Bank Participation Report is issued monthly
from a survey taken at the Comex close on the first Tuesday of every
month. The report summarizes the combined positions of the four
largest U.S. banks (primarily JPM, MorganStanley, Citi, Goldman
but occasionally others) and the twenty largest non-U.S. banks (Scotia,
HSBC, DeutscheBank, UBS, Barclays and others).
- These reports might be utter nonsense and complete
falsifications, designed to mislead you and get you leaning the wrong
way. In 2014, JPMorgan was fined by the CFTC for "repeatedly
submitting inaccurate reports relating to the required reporting of
positions". See here: http://www.cftc.gov/PressRoom/PressReleases/pr6968-14
Again, we know that what The Banks report as their "positions"
provides an incomplete picture at best. Not only do The Banks maintain
considerable long and short bets in the OTC market, they also operate
numerous, offshore hedge funds and utilize these funds to take positions not
included in the CFTC data as "commercial". So, what good are these
reports? Similar to the weekly Commitment of Traders reports, the Bank
Participation Report is only useful/interesting when considered historically.
Here's an example. Note how the positioning of the 24 Banks changed through
2015:
12/2/14 @$1199
|
GROSS LONG
|
GROSS SHORT
|
TOTAL NET
|
U.S. Banks
|
20,927
|
29,543
|
-8,616
|
Non-US Banks
|
21,154
|
73,145
|
-51,191
|
TOTAL
|
|
|
-59,817
|
Price rallied in early 2015, reaching the 2015 high of $1308 in late
January and, by the first Tuesday of February 2015, the report looked like
this:
2/3/15 @$1260
|
GROSS LONG
|
GROSS SHORT
|
TOTAL NET
|
U.S. Banks
|
9,163
|
65,901
|
-56,738
|
Non-US Banks
|
20,009
|
96,264
|
-76,255
|
TOTAL
|
|
|
-132,993
|
As you no doubt recall, price then declined through the balance of 2015 as
the bear trend continued. The 24 Banks used this price weakness to add a few
longs and cover a bunch of shorts. By the December BPR, the data looked like
this:
12/1/15 @$1060
|
GROSS LONG
|
GROSS SHORT
|
TOTAL NET
|
U.S. Banks
|
9,613
|
42,866
|
-33,253
|
Non-US Banks
|
39,407
|
36,911
|
+2,496
|
TOTAL
|
|
|
-30,757
|
Yes, you are reading that correctly...The 20 Non-US Banks actually had a
cumulative NET LONG position in Comex gold futures as of 12/1/15. And even as
price began to rally in late December and early January, the report still
revealed this:
1/5/16 @$1078
|
GROSS LONG
|
GROSS SHORT
|
TOTAL NET
|
U.S. Banks
|
10,791
|
118,437
|
-107,646
|
Non-US Banks
|
21,905
|
109,511
|
-87,606
|
TOTAL
|
|
|
-195,262
|
Again, what good are these numbers without context? So, here's some
context:
- Last week's Commitment of Traders report showed the
total NET short position of the Comex gold "Commercials" to be
294,901 contracts. We now know that 66% of this cumulative position
comes from accounts specifically reported to be "Banks".
- Note that during the price rally, The 24 Banks have not
only added massive shorts, they've also sold existing longs. Are these
the actions of entities looking to profit from higher prices or lower
prices?
- Adding together ALL of the 24 Bank positions you get
260,644 contracts. Last Tuesday's cumulative open interest was 565,774.
Thus, as of last Tuesday, The 24 Banks held a stake in 46% of ALL open
interest on the gold Comex. Compare that to 12/1/15 when The 24 Banks
held 33% of all open interest.
- And don't forget, the standard Cartel Shills and
Apologists will argue that these altruistic Banks are just performing a
public service. They're "making an orderly market" and simply
"providing needed services" for miners wishing to "hedge
and forward sell future production".
But lastly, here's the point of this post and the context of which you
simply must be aware...
After peaking in September of 2011, paper price fell to $1525 in a few
weeks. Over the next 12 months, price gradually recovered and, when The
Bernank announced QE3 in September of 2012, every single precious metals
"analyst" (including this one!) thought that even higher prices
were a near certainty. We all knew what had happened to the paper price of
gold through QE1 and QE2 and, more importantly, we all knew the long-term
relationship between the price of gold, the level of U.S. debt and the
Federal Reserve balance sheet. See here: http://www.zerohedge.com/news/what-does-4-tri...an-gold-and-oil
But a funny thing happened on the way to the coin shop. As we all know,
gold DID NOT go higher. Instead, against all logic and intuition, gold went
lower. Slowly at first and then all at once in the massive raids of April
12-15, 2013, which broke long-term support of $1525 and sent us to the final
bottom and lows of late last year.
As a point of interest, perhaps we should check the Bank
Participation Report from early October of 2012. Recall that price back then
was near $1800 (versus near $1300 today) and total Comex gold open interest
was 481,000 contracts (versus 566,000 last Tuesday.
10/2/12 @$1800
|
GROSS LONG
|
GROSS SHORT
|
TOTAL NET
|
U.S. Banks
|
40,625
|
146,809
|
-106,184
|
Non-US Banks
|
34,881
|
113,445
|
-78,564
|
TOTAL
|
|
|
-184,748
|
So, let's summarize. Though the data provided by the admitted lying Banks
is incomplete and though the report is compiled by the criminally-complicit
CFTC, you should be certain to take note of the similarities. Just as in late
2012, the situation "feels" strong and the fundamental case for paper
gold is compelling. However, which forces actually control the paper market?
Do such things as physical fundamentals matter? Do macro-economic conditions
matter? Or, does the positioning of the market-manipulating Banks play a
larger role in determining the future direction of "price"?
As you can see, we're now three and a half years later and price is over
$500 lower...yet The 24 Banks now have a summary NET short
position that is more extreme than ever. Will The Banks lose
this time? Will they be forced to cover shorts into higher prices instead of
lower? Will there be physical delivery failures as gold ownership increases
globally? Or will The Banks simply be successful again in rigging prices
lower so that they can profitably cover their ill-gotten shorts?
We'll see. Chances are we're not going to have to wait long to find out.
As always, prepare accordingly.
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Our Ask The Expert interviewer Craig Hemke began his career in financial
services in 1990 but retired in 2008 to focus on family and entrepreneurial
opportunities. Since 2010, he has been the editor and publisher of the TF
Metals Report found at target="_blank" TFMetalsReport.com, an online community for precious
metal investors.
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