The latest CFTC Bank Participation Report brings the usual horrors and it confirms our "inherently unfair" thesis. However, there's also a bigger picture that gold investors everywhere need to consider.
Before we begin, the usual background:
- 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. Just last year, 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
I will leave it up to you, dear reader, to assign or withhold legitimacy to/from the data. My job is simply to report to you on what the data shows...and it's sickening.
Ole Turd has written volumes over the past few weeks, describing the inherent unfairness of the Comex paper derivative market structure. (An example: http://www.tfmetalsreport.com/blog/6566/inherent-unfairness) Unlike other "markets", The Bullion Banks simply create new paper contracts whenever speculative demand increases. They do this to blunt momentum and stall price. Then, as price invariably retreats, The Banks use Spec liquidations to cover and withdraw these very same contracts.
For example, during January's price rally of over $100, total Comex gold open interest rose from a low of 371,000 contracts to a high of 451,000. Now that price has fallen back $70, total Comex gold open interest has drawn back down to 403,000. Near round-trip in price, near round-trip in open interest, too. Neat trick, huh? It's good work if you can get it.
We've documented this along the way by monitoring the daily open interest changes as well as the CFTC's weekly Commitment of Traders Report. Therefore, last Friday's Bank Participation Report was not surprising but it was grotesque, nonetheless.
I'll save you the gory details this time of how the BPR has changed, month over month, for the past two years. I just wrote about this again last month and you can check it out here if you'd like: http://www.tfmetalsreport.com/blog/6520/how-they-did-it.
Instead, this time I'd simply like to focus on how the 24 banks have changed their positions over the past month and the past year. It's pretty remarkable stuff.
A little over a month ago and with price at $1219, the January BPR survey was taken. When the report was released three days later, it looked like this:
GROSS LONG GROSS SHORT TOTAL
U.S. Banks 11,728 37,321 -25,593
Non U.S. Banks 32,985 80,227 -47,242
TOTAL 44,713 117,548 -72,835
What this shows is that, as of January 5 2015, the combined position of the 24 largest banks in the world that trade paper gold was 72,835 contracts NET SHORT. That's 7,283,500 ounces or about 226 metric tonnes. It's interesting to note, of course, that the entire Comex gold vaulting system only holds 8,166,900 troy ounces (registered and eligible) or about 254 metric tonnes.
Over the next four weeks, price and open interest both rose and by the time this most recent BPR survey was taken last Tuesday, gold was up $41 to $1260 and total OI was up 25,000 to 419,524 contracts. The report, released late last Friday showed this:
GROSS LONG GROSS SHORT TOTAL
U.S. Banks 9,163 65,901 -56,738
Non U.S. Banks 20,009 96,264 -76,255
TOTAL 29,172 162,165 -132,993
As you can see, as of last Tuesday the 24 largest gold banks were now NET SHORT 132,993 Comex gold contracts. That's the equivalent of 13,299,300 troy ounces of paper gold or about 414 metric tonnes.
More startling and in confirmation of our "inherent unfairness" storyline, over the past four weeks:
- Price rose by $41 or 3.37%
- Total Comex gold open interest rose by 25,503 contracts or 6.46%
- The total 24 bank NET SHORT position rose by 60,158 contracts or 82.6%
Oh my goodness. Just typing those numbers makes me want to vomit. And to think that there are still Cartel Shills and Apologists out there that claim that "the banks are just making a market" and/or "hedging for miners". If you believe that, I've got an Idaho potato farm to sell you.
Anyway, draw you own conclusions. If you'd like to persist in a belief that these "markets" are "free and fair", knock yourself out. As we end this month's exercise though, I'd like you to consider the implications of one more BPR survey data table. First, check out the data, itself:
GROSS LONG GROSS SHORT TOTAL
U.S. Banks 68,658 24,937 +43,721
Non U.S. Banks 18,752 48,860 -30,108
TOTAL 87,410 73,797 +13,613
So, now you're wondering...when was this survey taken? And at what price and open interest? Well, I hope you're sitting down. I also hope that you haven't recently eaten.
The data listed above was from the BPR survey taken exactly one year ago, on February 4, 2014. Price that evening was $1252 and total open interest was 368,279.
Therefore, with price nearly unchanged YoY and with total open interest up by about 51,000 contracts, the 24 largest gold-trading banks have massaged their NET position by 146,606 contracts. A NET change of 14,660,600 troy ounces or 456 metric tonnes....
And this is where I will leave you. Ponder that bit of information for a while. You might ask yourself..."Self, what in the world are The Banks so afraid of? Why would they go to such great lengths to keep price from rising? How is this even legal?"
Those are certainly good questions to ask and I look forward to pondering the answers and addressing the implications in the days ahead.