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Another Very Interesting COT Report

 -- Published: Sunday, 11 March 2018 | Print  | Disqus 

By Ed Steer

10 March 2018 -- Saturday


The gold price was sold quietly lower starting once trading began at 6:00 p.m. EST in New York on Thursday evening -- and by around 9:30 a.m. CST on their Friday morning, it was down about 5 bucks.  It began to crawl slowly higher starting around 2 p.m. CST -- and that lasted until the noon silver fix in London.  It rolled over a bit from there -- and the low tick of the day was set at 8:30 a.m. in New York.  From that juncture the gold price began to rally unsteadily -- and that state of affairs lasted until around noon EST -- and it didn't do much after that.


The low and ticks really aren't worth looking up, but here they are anyway...$1,313.20 and $1,325.90 in the April contract.


Gold finished the Friday session at $1,323.10 spot, up $1.50 from Thursday's close.  Net volume was pretty chunky at just under 287,000 contracts -- and roll-over/switch volume was pretty heavy as well, at a bit over 50,000 contracts.

The price pattern in silver on Friday was virtually the same as it was for gold, except for the fact it was more 'lively'.  The price moves were somewhat more exaggerated, but the price inflection points were mostly the same.  The biggest difference was that silver's high tick of the day came a few minutes after 12 o'clock noon in New York.  It was aggressively capped and sold lower from there, until around 1 p.m. EST -- and chopped sideways from there until trading ended at 5:00 p.m. EST.


The low and high ticks in this precious metal were reported by the CME Group as $16.33 and $16.71 in the May contract.


Silver was closed in New York yesterday at $16.565 spot, up 10.5 cents on the day.  Net volume was pretty heavy at just under 82,500 contracts -- and roll-over/switch volume was a bit over 8,000 contracts on top of that.

The platinum price did virtually nothing except trade sideways for all of Far East -- and most of Zurich trading on their respective Fridays.  It was sold down a small handful of dollars in the hour preceding the jobs report -- and once that event was out of the way, away it went to the upside.  Like silver and gold, its price was capped at noon in New York, but it managed to tack on a few more dollars in the after-hours market.  Platinum finished the day at $964 spot, up 13 bucks.

Palladium was down a few dollars right out of the gate at 6 p.m. EST in New York on Thursday evening -- and traded in the red until a rally began at 8 a.m. EST in New York.  Like the other three precious metals, the rally developed more 'legs' after the jobs report was out.  It rallied rather sharply from there until just after 10 a.m. EST -- and then crawled quietly higher for the remainder of the Friday session.  Palladium closed in New York yesterday at $992 spot, up 17 dollars on the day.

The dollar index closed very late on Thursday afternoon in New York at 90.12 -- and after a 2-hour long 19 basis point rally starting once trading began at 6:00 p.m. EST Thursday evening, it began to head quietly lower.  That tiny sell-off lasted until minutes after 9 a.m. in London -- and it began to chop quietly higher from there.  There was a minor down/up flurry at the release of the job numbers -- and the 90.36 high tick [such as it was] was placed around 8:40 a.m. EST.  The index was sold quietly lower until noon, which happened to correspond with the high ticks of the day in both gold and silver -- and it crawled equally quietly higher into the close from there.  The dollar index finished the day at 90.14 -- and up 2 basis points on the day.


For the second time in as many days, JPMorgan et al had the opportunity to smash precious metal prices handed to them on a silver platter, but they declined both times.  I'm not sure that anything should be read into that, but I thought it worth pointing out one more time.

And here's the 6-month U.S. dollar index -- and we're still sitting a hair below its 50-day moving average.  But with the currency markets as heavily managed as they are, you have to wonder just how important these moving averages are anymore.


The gold shares sold off a bit at the open, but that only lasted for about twenty-five minutes or so -- and they rallied back into positive territory by a bit within the next thirty minutes.  They tried valiantly to stay in positive territory, but once gold's high tick was in at noon in New York, they began to slide -- and continued to do so until around 2 p.m. EST.  They chopped mostly sideways from there -- and managed to close off their respective low ticks by a bit.  The HUI finished down 0.42 percent.

The silver equities also sold off a bit once trading began at 9:30 a.m. EST in New York on Friday morning, but their respective rallies off their low ticks was far more substantial.  And even though their highs came at noon when silver's price was capped and turned lower, they never fell back into the red from there.  Nick Laird's Intraday Silver Sentiment/Silver 7 Index closed up a very modest 0.37 percent.  Click to enlarge if necessary.

And here's Nick's 1-year Silver Sentiment/Silver 7 Index chart.  Click to enlarge as well.

Here are the usual charts from Nick that show what's been happening for the week, month-to-date -- and year-to-date.  The first one shows the changes in gold, silver, platinum and palladium for the past trading week, in both percent and dollar and cents terms, as of their Friday closes in New York - along with the changes in the HUI and the Silver 7 Index.


Here's the weekly chart -- and it's certainly looking better than last week's chart.  Click to enlarge.

And here's the month-to-date chart -- and it's looking a lot happier as well.  Click to enlarge.

And the year-to-date graph is somewhat better, but still pretty ugly.  Click to enlarge as well.

As I said last week, we're much closer to the end of this engineered price decline than we are the beginning, with the only negative factor still being gold's 200-day moving average -- and we await resolution of that.


When this market does turn, as it certainly will at some point, then all these unhappy looking charts will be a thing of the past.

The CME Daily Delivery Report showed that zero gold and 101 silver contracts were posted for delivery within the COMEX-approved depositories on Tuesday.  In silver, of the four short/issuers in total, the two largest were Macquarie Futures with 85 out of its in-house/proprietary trading account -- and 11 contracts from Advantage's client account.  There were five long/stoppers in total...Goldman Sachs with 34 contracts for its own account...HSBC USA with 25 contracts for its own account as well -- and JPMorgan and Advantage with 22 and 12 contracts for their respective client accounts.  The link to yesterday's Issuers and Stoppers Report is here.


So far this month, Goldman Sachs has stopped 2,333 silver contracts for its own account.  JPMorgan has stopped 447 contracts for its own account as well, plus another 243 for its clients.  And still only 4 gold contracts issued and stopped so far this month -- and I'm wondering out loud, just why that is?


The CME Preliminary Report for the Friday trading session showed that gold open interest in March declined by 17 contracts, leaving 543 still around.  Thursday's Daily Delivery Report showed that zero gold contracts were posted for delivery on Monday, so that means that 17 more gold contracts vanished from the March delivery month by mutual consent between the short/issuers and long/stoppers involved.  Silver o.i. March fell by 140 contracts, leaving 499 still open, minus the 101 contracts mentioned two paragraphs ago.  Thursday's Daily Delivery Report showed that 173 silver contracts were actually posted for delivery on Monday, so that means that 173-140=33 more silver contract just got added to March.

There were no reported changes in either GLD or SLV -- and there was no sales report from the U.S. Mint yesterday, either. business days...the mint has sold 3,500 troy ounces of gold eagles -- 165,000 silver eagles -- and zero 1-ounce 24K gold buffaloes.  None of these sales occurred this past week. The retail bullion market is non-existent.


There was very little activity in gold over at the COMEX-approved gold depositories on the U.S. east coast on Thursday.  Nothing was reported received -- and only 964.500 troy ounces/30 kilobars [U.K./U.S. kilobar weight] were shipped out -- and that occurred over at Canada's Scotiabank.  I won't bother linking this amount.


It was busier in silver, as 595,976 troy ounces were reported received, but only 20,003 troy ounces were shipped out.  In the 'in' category, there was one truck load...595,976 troy ounces...left at Scotiabank -- and the remaining 16,611 troy ounces was dropped off at CNT.  All of the 'out' activity was at Delaware.  There was also 827,327 troy ounces transferred from the Eligible category -- and into Registered.  That happened over at CNT -- and that's delivery related, I'm sure.  The link to this activity is here.


It was a pretty busy day over at the COMEX-approved gold kilobar depositories in Hong Kong on their Thursday.  They reported receiving 6,208 of them -- and they also shipped out 4,862.  All of this action was at Brink's, Inc. as per usual -- and the link to that, in troy ounces, is here.

Here's a chart that Nick sent around early yesterday evening.  It shows the Shanghai Gold Exchange withdrawal data, updated with February's numbers.  They withdrew 118.42 tonnes during that month.  Click to enlarge.

The Commitment of Traders Report, for positions held at the close of COMEX trading on Tuesday, was a crushing disappointment when I first saw the headline numbers in the Legacy COT Report, as they were miles away from Ted's original estimates.  There was a big increase in the commercial net short position in silver -- and a smallish increase in gold as well...not the hoped-for reductions that Ted spoke of in my Friday column.

But once I talked to Ted on the phone -- and saw the internal structure of what each different category did, then I felt a whole lot better.

One thing that we agreed on, was that virtually all the changes during the reporting week -- and that appear in this COT Report, occurred on the cut-off day, which was Tuesday.  That's when silver spiked up to its 50 and 200-day moving averages -- and gold rallied above, and closed above, its 50-day moving average.  The prior four days of the reporting week were totally uneventful...'Dullsville', is how Ted put it.

In silver, the Commercial net short position increased by a chunky 7,347 contract, or 36.7 million troy ounces of paper silver.


They arrived at that number by reducing their long position by 7,378 contracts -- and they reduced their collective short position by a tiny 31 contracts -- and it's the difference between those two numbers that represents the change for the reporting week.


Ted said that the Big 4 traders actually reduced their short position by around 1,100 contracts during the reporting week -- and the big '5 through 8' traders also reduced their short position -- and by about 2,000 contracts.  Where the big change occurred, was with Ted's raptors, the 32 small commercial traders other than the Big 8, as they sold a monstrous 10,400 long contracts.


Selling a long contract has the mathematical effect of increasing the net short position, because it reduces the total long position of the Commercial traders, and thus increases the perceived net short position.


That's the mathematics of it on the surface, but underneath that, the Big 8 decreased their net short position during the reporting week, which is always a good sign.


Under the hood in the Disaggregated COT Report, it was mostly Managed Money traders gobbling up the long contracts that the raptors were selling, as they increased their long position by 4,389 contracts -- and the also decreased their short position by 968 contract.  The sum of those two numbers...5,357 contracts...which represents their change for the reporting week.  The difference between that number -- and the Commercial net short position...7,378 minus 5,357 equals 2,021 contracts...was all accounted for by the traders in the 'Other Reportables' category, as they went long and covered shorts big-time as well.


So, in a way, the raptors...who were selling longs for big profits on Tuesday's sharp rally, found ready buyers in the Big 8 category, the Managed Money -- and in the 'Other Reportables' category -- and for once, just about everyone was 'grazing' on what the raptors were selling.  Normally it's the brain-dead Managed Money traders in that position, but not during this reporting week.


The Commercial net short position in silver is now up to 109.0 million troy ounces, but I'm not alarmed by that increase, as it was a mathematical change.  The Big 8 were not involved in more shorting.  Au contraire, they were covering short positions.


And with the latest Bank Participation Report in hand, Ted estimates that JPMorgan's short position in the COMEX futures market in silver is about 28,000 contracts.  He was hoping for a positive surprise, but that never materialized.


Here's the 3-year COT chart for silver -- and despite the 'increase' in the Commercial net short position during the reporting week, it remains as wildly bullish as ever.  Click to enlarge.

Ted pointed out on the phone that since the Tuesday cut-off, we have hit new lows in silver [yesterday] -- and all of this week's 'deterioration' in yesterday's COT Report has been totally reversed -- and possibly a bit more.  It appeared to have been one of Ted's patented "scams within a scam"...all orchestrated by the raptors.

In gold, the commercial net short position increased by 5,107 contracts, or 510,700 troy ounces of paper gold.


They arrived at that number by selling 8,106 long contracts, plus they reduced their short position by 2,999 contracts -- and it's the difference between those two numbers that gives us the change for the reporting week.


And, like for silver, Ted's raptors sold copious amounts of long contracts -- and the Big 8 were snapping them up hand over fist.


Ted said that the Big 4 traders reduced their short position by approximately 4,600 contracts -- and the '5 through 8' large traders reduced their short position by about 3,200 contracts.  Ted's raptors, the 42-odd small commercial traders other than the Big 8, were huge long sellers, dumping around 12,900 contracts worth.


The raptors made just oodles of money selling those longs, because gold rallied above -- and then closed above its 50-day moving average on Tuesday, which was the last trading day of the reporting week.


Under the hood in the Disaggregated COT Report, there wasn't a lot of change amongst the Managed Money traders.  The sold 4,983 long contracts -- and they also reduced their short position by 5,670 contracts.  The difference between those two numbers...687 contracts...was their change for the reporting week.  And, like in silver, virtually every contract of difference between the commercial net short position and what the Managed Money traders did...5,107 minus 687 equals 4,420 contracts...were snapped up by the traders in the 'Other Reportables' category.


The commercial net short position in gold is now up to 20.49 million troy ounces, only a tiny increase but, like for silver, it's a 'mathematical change' as the Big 8 weren't involved, as they were scarfing up every long contract that they could lay their hands on of what Ted's raptors, the small commercial traders other than the Big 8, were selling.


Gold has been hammered back below its 50-day moving average -- and a new low price for this move down was set during COMEX trading yesterday morning.  This reverses everything that happened during the big moving average busting rally on Tuesday -- and then some.


Here's the 3-year COT chart for gold -- and despite what the chart shows, the most important traders of all, the Big 8, were covering like mad during the reporting week.  Click to enlarge.

So, despite what yesterday's COT Report showed, out of sight there were big improvements -- and even more improvements since the cut-off.  So what looked like a sow's ear at first sight, really was a silk purse if you knew what to look for.  And without Ted's knowledge of this 'scam within a scam'...I wouldn't know any of this, nor would you.


I look forward to reading what Ted has to say about all this in his weekly review later this afternoon.

Here's Nick Laird's "Days to Cover" chart updated with yesterday's COT data for positions held at the close of COMEX trading on Tuesday.  It shows the days of world production that it would take to cover the short positions of the Big 4 - and Big '5 through 8' traders in each physically traded commodity on the COMEX.  These are the same Big 4 and '5 through 8' traders discussed in the COT Report above.  Click to enlarge.

For the current reporting week, the Big 4 are short 130 days of world silver production-and the '5 through 8' large traders are short an additional 37 days of world silver production-for a total of 167 days, which is five and a half months of world silver production, or about 405.8 million troy ounces of paper silver held short by the Big 8.  [In the COT Report last week, the Big 8 were short 174 days of world silver production.]


In the COT Report above, the Commercial net short position in silver was reported as 109.0 million troy ounces.  As mentioned in the previous paragraph, the short position of the Big 8 traders is 405.8 million troy ounces.  The short position of the Big 8 traders is larger than the total Commercial net short position by a chunky 405.8 minus 109.0 = 296.8 million troy ounces.  The reason for the difference in those numbers is that Ted's raptors, the 32-odd small commercial traders other than the Big 8, are long that amount.  How ridiculous is that, you ask?


As I also stated in the above COT Report analysis, Ted pegs JPMorgan's short position at about 28,000 contracts, which is up 1,000 contacts from the prior reporting week, or around 140 million troy ounces, up 5 million ounces from what they were short in last week's COT Report.  140 million ounces works out to around 58 days of world silver production that JPMorgan is short.  That's compared to the 167 days that the Big 8 are short in total.  JPM holds about 35 percent of the entire short position held by the Big 8 traders.


With Scotiabank now publicly admitting that they couldn't find a sucker to buy ScotiaMocatta, I would suspect that they will continue to exit their short positions in both gold and silver as quickly as they can -- and if they can.


JPMorgan has been forced by circumstance to pick up Scotiabank's trading/price management duties in silver and gold.  So JPMorgan is by far the No. 1 silver short on Planet Earth -- and likely to remain that way until this price management scheme comes to an end.  Of course they have about 700 million troy ounces of physical silver stashed away to cover that, so they are in no danger.  That can't be said of the remaining Big 7, unless JPMorgan plans to bail out some, or all of them.


With JPMorgan short about 57 days of world silver production, that leaves the other three traders in the Big 4 category short 130-57=73 days of world silver production divided up between them...a bit over 24 days of world silver production each. [And not to be forgotten, is that one of those traders is the big Managed Money short that's still 'just visiting' in this category.]  And it's guaranteed that those 73 days aren't divided up equally between the remaining Big 3.


The four traders in the '5 through 8' category are short 37 days of world silver production in total, about 9.25 days of world silver production each, which is down a whole bunch from what each was short in last week's COT Report.  Five weeks ago, the big '5 through 8' traders were short 16 days of world silver production each!  Since then, the '5 through 8' large traders has gone from short 16 days of world silver production each, down to 9.25 days...or just under 4,500 COMEX contracts each.  The short positions of the '5 through 8' traders have now become almost immaterial compared to the short positions of the Big 4...or the Big 1.


The disparity between the average short positions held by the traders in the Big 4 category, compared to the short positions held by each of the Big '5 through 8' categories has now become huge -- and that situation has blown out a lot more in this week's COT Report.


I would suspect, based on these numbers, that Scotiabank is still a member of the Big 4 Commercial shorts, but in third of fourth spot at the moment.


The Big 8 commercial traders are short 41.4 percent of the entire open interest in silver in the COMEX futures market, which is down a bit from the 43.7 percent they were short in last week's COT Report.  Once whatever market-neutral spread trades are subtracted out, that percentage would be closer to 45 percent.  In gold, it's now 46.2 percent of the total COMEX open interest that the Big 8 are short, up a bit from the 45.5 percent they were short in last week's report -- and around 50 percent once the market-neutral spread trades are subtracted out.


In gold, the Big 4 are short 64 days of world gold production, which is down 2 days from what they were short last week -- and the '5 through 8' are short another 20 days of world production, which is unchanged from what they were short the prior week, for a total of 84 days of world gold production held short by the Big 8 -- which is down 2 days from the 86 days they were short in last week's report.  Based on these numbers, the Big 4 in gold hold about 76 percent of the total short position held by the Big 8...which is down 1 percentage point from last week's COT Report.


The "concentrated short positions within a concentrated short position" in silver, platinum and palladium held by the Big 4 commercial traders are 78, 72 and 80 percent respectively of the short positions held by the Big 8.  Silver is up 2 percent points from the previous week's COT Report -- and both platinum and palladium are unchanged from last week's COT Report -- and just off their record highs.  The short position of the Big 4 vs. the Big 8 in silver is at yet another new record high -- and pretty close to a record high percentage in gold as well, as the short positions get more and more concentrated into the Big 4 traders category.  The '5 through 8' traders are in danger of becoming 'also rans' -- and that's more than obvious in the above 'Days to Cover' chart...especially with silver and palladium.  But even the other two precious metal are ridiculous.

The March Bank Participation Report [BPR] data is extracted directly from the above Commitment of Traders Report.  It shows the COMEX futures contracts, both long and short, that are held by all the U.S. and non-U.S. banks as of Tuesday's cut-off.  For this one day a month we get to see what the world's banks are up to in the COMEX futures market, especially in the precious metals-and they're usually up to quite a bit.


In gold, 5 U.S. banks were net short 99,862 COMEX contracts in the March BPR, which is almost 50 percent of this week's commercial net short position shown in the above COT Report.  In February's Bank Participation Report [BPR], 6 U.S. banks were short 114,088 contracts, so they've decreased their collective short positions by around 14,200 contracts.  Four of the six U.S. banks would certainly include JPMorgan, HSBC USA, Citigroup -- and Goldman.  As for who the fifth and sixth U.S. banks might be-I haven't a clue, but I doubt very much if their positions, long or short, would be material.


Also in gold, 29 non-U.S. banks are net short 69,826 COMEX gold contracts, which isn't much per bank.  In the February BPR, 28 non-U.S. banks were net short 64,513 COMEX contracts, so the month-over-month change shows an increase of about 5,300 contracts.  I suspect that there's at least one large non-U.S. bank in this group that might hold a third of this short position all by itself -- and the remaining contracts, divided up between the remaining 28 non-U.S. banks, would be immaterial. I would suspect that Scotiabank is the culprit, although their short position most likely has been reduced somewhat over the last year or so, as they made the attempt to sell their precious metals division, ScotiaMocatta.


As of this Bank Participation Report, 34 banks [both U.S. and foreign] are net short 33.4 percent of the entire open interest in gold in the COMEX futures market, which is virtually unchanged from the 33.3 percent they were short in the February BPR.


Here's Nick's chart of the Bank Participation Report for gold going back to 2000.  Charts #4 and #5 are the key ones here.  Note the blow-out in the short positions of the non-U.S. banks [the blue bars in chart #4] when Scotiabank's COMEX short position was outed by the CFTC in October of 2012.  Click to enlarge.

In silver, 5 U.S. banks are net short 30,326 COMEX silver contracts in March's BPR - and Ted figures that JPMorgan is the proud owner of 28,000 contracts of that amount.  This means that some of the remaining 4 U.S. banks have to be net long the silver market by a bit, in order to make these number work out, as they are long to the tune of 3,242 COMEX silver contracts.  In February's BPR, the net short position of these U.S. banks was 31,460 contracts, a decrease of about 1,100 contract since the last BPR report in February.


Also in silver, 21 non-U.S. banks are net short 17,317 COMEX contracts...almost unchanged from the 17,378 contracts that 19 non-U.S. banks were short in the February BPR.  I would suspect that Canada's Scotiabank holds a goodly chunk of this amount all by itself, but down a substantial amount from a year or so ago.  That most likely means that a number of the remaining 20 non-U.S. banks might actually be net long the COMEX silver market.  But even if they aren't, the remaining short positions divided up between these other 20 non-U.S. banks are immaterial - and have always been so.


As of March's Bank Participation Report, 26 banks are net short 24.2 percent of the entire open interest in the COMEX futures market in silver-which is up a hair from the 23.8 percent that they were net short in the February BPR - with much, much more than the lion's share of that held by JPMorgan and Scotiabank.


Here's the BPR chart for silver.  Note in Chart #4 the blow-out in the non-U.S. bank short position [blue bars] in October of 2012 when Scotiabank was brought in from the cold.  Also note August 2008 when JPMorgan took over the silver short position of Bear Stearns-the red bars.  It's very noticeable in Chart #4-and really stands out like the proverbial sore thumb it is in chart #5.  Click to enlarge.

In platinum, 4 U.S. banks are net short 17,665 COMEX contracts in the March Bank Participation Report.  In the February BPR, 5 U.S. banks were net short 20,817 COMEX platinum contracts, so there's been a decent-sized decrease in the short position of the U.S. banks in question during the last reporting month.


I suspect that, like in silver and palladium, JPMorgan holds virtually all of the platinum short position by itself.


Also in platinum, 18 non-U.S. banks are net short 7,101 COMEX contracts, which is down about 1,500 contracts from the 8,589 contracts they were net short in the February BPR.


As you can see from the number of banks and number of contracts involved in the U.S./non-U.S. categories...this price management scheme in platinum is a "Made in America" show as well.


And as of March's Bank Participation Report, 22 banks were net short 30.7 percent of the entire open interest in platinum in the COMEX futures market, which is down a bit from the 32.3 percent they were collectively net short in the February BPR.  Click to enlarge.

In palladium, 4 U.S. banks were net short 9,767 COMEX contracts in the March BPR, which is down a very decent amount from the 12,021 contracts they held net short in the February BPR.  And to show you how lopsided the short position is in palladium, these four U.S. banks hold a total long position of only 669 contracts.


Also in palladium, 14 non-U.S. banks are net short 2,613 COMEX contracts-which is down a bit from the 3,096 COMEX contracts that 12 non-U.S. banks were short in the February BPR.  When you divide up the short positions of these non-U.S. banks more or less equally, they're immaterial...especially when you compare them to the positions held by only 4 U.S. banks.


But, having said all that, as of this Bank Participation Report, 18 banks are net short 48.3 percent of the entire COMEX open interest in palladium...which is a monstrous and outrageous amount...and more than the short positions held by the Big 8 traders in silver and gold.  It's also a new record high percentage number.  In February's BPR, the world's banks were net short 46.8 percent of total open interest, which is still grotesque.


Here's the palladium BPR chart.  You should note that the U.S. banks were almost nowhere to be seen in the COMEX futures market in this metal until the middle of 2007-and they became the predominant and controlling factor by the end of Q1 of 2013.  I would still be prepared to bet big money that, like platinum and silver, JPMorgan holds the vast majority of the U.S. banks' short position in this precious metal as well.  Click to enlarge.

As I say every month at this time, there's a maximum of four U.S. banks-JPMorgan, HSBC USA, Goldman and maybe Citigroup-along with Canada's Scotiabank...and they're getting out of Dodge-that are the tallest hogs at the precious metal price management trough.


JPMorgan is now the largest silver short holders on Planet Earth in the COMEX futures market -- and by more than the proverbial country mile.  JPMorgan's short position now towers above all of the rest of the Big 7 traders...including Canada's Scotiabank.


I have very few stories for you today.  But as promised in my Thursday column, I do have a repeat of the Cohen/Batchelor interview.


"Goldilocks": February Payrolls Smash Expectations Soar By 313K, But Hourly Earnings Miss

There was good and bad news in the just released payrolls report: on one hand, February payrolls soared by a whopping 313K, smashing expectations of 205K, and well above last month's upward revised 239K (from 200K). This was the biggest monthly increase since October 2015.


The change in total non-farm payroll employment for December was revised up from +160,000 to +175,000, and the change for January was revised up from +200,000 to +239,000. With these revisions, employment gains in December and January combined were 54,000 more than previously reported.


The unemployment rate failed to drop to 4.0% as expected, remaining unchanged at 4.1%.

Now for the not so good news, which confirm that the February wage spike was to be short-lived, as hourly wages rose only 2.6% last month, below the 2.8% expected, with the February outlier of 2.9% also revised lower to 2.8%. This was in large part due to the increase in the workweek to 34.5 from 34.4 last month, which was a major reason for the spike in average hourly earnings in February.


The lack of notable wage growth even with the whopping payrolls addition confirms that a lot of slack still remains in the jobs market, or a return to the "Goldilocks" narrative, which as Bloomberg commentator Paul Dobson puts it, "Big beat on payrolls plus miss on average hourly earnings is great news for stocks (cheap labor) and may leave bonds/the dollar little changed."


This news item appeared on the Zero Hedge website at 8:35 a.m. Friday morning EST -- and it's the first offering of the day from Brad Robertson.  Another link to it is here.  There was a related ZH story about this -- and it's headlined "Record 1 Million Full and Part Time Jobs Added" -- and comes to us courtesy of Richard Saler.

Wholesale Trade Sales Tumble in January, Biggest Drop in 2 Years as Inventories Build

After 7 straight months of growth, wholesale sales tumbled in January - the worst drop since Jan 2016.


On the other side of the wholesale picture, inventories rose 0.8% MoM (more than the expected 0.7% build), the highest since August 2017.


Which is likely to prompt upgrades for Q1 GDP.


Of course this divergence between sales (dropping) and inventories (building), sent the inventories/sales ratio up by the most in 3 years...


This tiny 3-chat Zero Hedge article showed up on their Internet site at 10:09 a.m. EST on Friday morning -- and it's the second contribution in a row from Brad Robertson.  Another link to it is here.

Buying Stocks Doesn't Make You an Investor/Counterfeit Market -- Bill Bonner

The market was counterfeit, financed with counterfeit money lent at counterfeit rates to counterfeit investors.


When you buy a stock, unless it is at the IPO stage or an already publicly listed company issuing new stock, none of the money goes to the company.


You're simply taking an already existing share certificate off another investor's hands. None of it builds a factory or hires an employee.


Which is why colleague Chris Mayer likes to call the stock market a "market for secondhand goods."


This raises a question: Why did the person who knew the company better than you decide to sell his shares?


This interesting commentary was posted on the Internet site on Friday morning EST -- and another link to it is here.

Jim Grant: Bond Bear Market, Inflation, Gold, Junk Bonds, China & Much More

Erik Townsend welcomes Jim Grant to MacroVoices. Erik and Jim discuss new Fed governor Powell, treasury yields and how far the FED go before something breaks. They discuss his outlook on inflation, gold, junk bonds, China and the drivers of long term debt cycles. They reflect on History and what happened when the FED did not bail out the banks in 1920 and considerations on what actions the U.S. government can take to deal with the debt.


This 1 hour and 18 minute audio interview was posted on the Internet site on Thursday sometime -- and I thank Judy Sturgis for sending it our way.  I haven't listened to it myself as of yet, but it's on my 'to do' list this weekend for sure.  Another link to it is here.

Doug Noland: Q4 2017 Z.1 Flow of Funds

So much uncertainty in the world these days. Some things, however, we know with certitude: U.S. Debt, the value of the securities markets and Household Net Worth do grow to the sky. The Fed's latest Z.1 report documents another quarter of inflating Credit, markets and perceived wealth - three additional months of history's greatest Bubble.


Massive inflows of international finance have been integral to the U.S. securities market Bubble. Inflating securities and asset prices have inflated perceived household wealth, a dynamic fundamental to the U.S. Bubble Economy.


I define a Bubble as a self-reinforcing but inevitably unsustainable inflation. Household Net Worth at 500% of GDP is not sustainable. I believe it is unsustainable because I don't believe Total Securities at 449% of GDP is sustainable. And current securities values are unsustainable because the current financial structure is not sustainable.


Too large a percentage of new Credit creation is financing overvalued assets (securities and real estate, in particular), leaving this source of liquidity vulnerable to asset price reversals. Too much of the new Credit is Treasury and government-related securities that are grossly mispriced in the marketplace. Moreover, enormous foreign-sourced inflows are having a major (if unappreciated) impact on marketplace liquidity. I suspect that a significant portion of these inflows are related to global QE and, somewhat less directly, to speculative leveraging ("carry trades," etc.). These sources of liquidity are increasingly vulnerable to central bank "normalization," higher funding costs and rising global yields.


Doug's weekly Credit Bubble Bulletin was posted on his website in the wee hours of this morning EST -- and another link to it is here.

Time to Get Over the Russophobia -- Patrick Buchanan

Unless there is a late surge for Communist Party candidate Pavel Grudinin, who is running second with 7 percent, Vladimir Putin will be re-elected president of Russia for another six years on March 18.


Then we must decide whether to continue on course into a second Cold War, or engage Russia, as every president sought to do in Cold War I.


For our present conflict, Vladimir Putin is not alone at fault. His actions have often been reactions to America's unilateral moves.


After the Soviet Union collapsed, we brought all of the Warsaw Pact members and three former republics of the USSR into our military alliance, NATO, to corral Russia. How friendly was that?


The U.S. political system, said Putin this week, "has been eating itself up." Is his depiction that wide of the mark?


What is the matter with us?


This commentary by Pat put in an appearance on the Internet site at 9:06 p.m. EST on Thursday evening -- and I thank Phil Manuel for sharing it with us.  Another link to it is here.

Tales of the New Cold War: The New MAD Doctrine and restarting the arms race -- John Batchelor interviews Stephen F. Cohen

Part 1:  A lot has changed due to Vladimir Putin's speech of last Thursday and Batchelor opens the discussion with a few details focusing on the new Russian weapons announced, and how this changes the complexion of the New Cold War in terms of MAD (Mutually Assured Destruction). He notes a statement from the Russian Defence Minister, Sergei Shoigu, that the changes are major, that the U.S. anti-missile defence system (Patriot missiles on Russia's borders) now "has holes in it", and the new cruise missile nuclear missile - capable of evasion - brings new encouragement for change in NATO encroachment on its borders. Meanwhile in the U.S. State Department a group is now established to watch of Russian attempts to meddle in U.S. elections. And Stephen Cohen is quick to state that the Putin State of the Union speech was indeed a truly historic act. The reaction from Washington was one of dismissal that Putin was bluffing. Cohen simply states that Putin does not bluff. He further states that for the first time Russia has surpassed the U.S. in its nuclear missile capabilities - "nullified" is his word. He then goes on to describe the historical aspects of the old MAD doctrines that led to parity between the powers. This led to mutual reductions of nuclear weapons - initiated by President Reagan and Gorbachev. This ended with the end of the Soviet Union and Washington again pushed for superiority in weapons. This took the form in the 1990s of NATO expansion, improving delivery systems, and ABM system development. Parity was no more. Parity is still no more but the advantage now is with Russia.


Part 2:  The search for a new parity, aka the nuclear arm's race, is now the game and the discussion shifts to what this means for Putin and Trump. Cohen, the historian tried to explain the problem that during the first Cold War it gradually became apparent that the arms race was not a solution. At this new juncture, with the advantage held by Russia, Cohen wonders why there is no comment from the CIA about new Russian weapons. Why did the CIA have no warning about these new weapons? Batchelor is in turn upset with the escalation of the New Cold War that these weapons pose to the world, and why in the world did we go back to it.....? Cohen turns to Putin's speech for the response, that Putin warned: "No, nobody really wanted to talk to us about the core of the problem, and nobody wanted to listen to us. So listen now." Cohen still believes, however, that Washington listened in the during the first Cold War, but not very well in the New Cold War. He also notes that the Russian "war party" was also listened to and this led to the revelation of these new weapons. Putin calls this a "turning point". It was also clear from Putin's words that his goal was negotiation, but was not optimistic - that seeking U.S. superiority would be the response from Washington. But Cohen clearly understands that Putin wants an end to any arm's race. Nor does he want Russia to be a super power. Cohen also thinks that Washington will ignore this and continue to work toward dominance.

It is surprising that Cohen states that Putin's position is that Russia has achieved nuclear weapon parity, and yet clearly Russia has now achieved more than this. Of course there are many more reasons now for Washington to ignore Putin's appeals, not least of which is the deplorable fact that arms races are seen as good for business. But Washington is still in shock and is expected to descend into a funk of denial and rage as the horrible reality that it has lost the arms race without much chance of over taking Russia sinks in and festers. What may also sink in is that Russia probably has few of these new missiles and drones operational or in meaningful numbers to be used against the U.S. So at the same time Putin is appealing for common sense negotiations, the war party in the U.S. may consider that starting a winnable war sooner rather than later may be the wiser course.


Something also not discussed is the position held by some neocons in the military that a nuclear war is winnable. That there is no discussion about these dangers, and rampant censorship that hides geopolitical and military realities from the citizen is not a fortuitous condition either. When a government accepts a corrupt orthodoxy and insists that all conform to it - the Russiagate narrative even when it is clearly nonsense, this is deeply worrisome. One then cannot expect those that control Washington to be open to anything Putin wants to do in the name of peace.


This 2-part audio interview with Stephen was posted on the Internet site on Tuesday -- and my profound thanks, as usual, goes out to Larry Galearis for his excellent executive summary posted above.  This interview was posted in my Thursday column, along with the promise that it would be in my Saturday missive as well -- and here it is. The link to Part 1 is in the headline -- and here.  And the link to Part 2 is here.

Breakingviews - Review: The flimsy finances behind China's miracle

China's economy has long defied the doom-mongers. In place of their ominous critique, a more constructive view of economic management in the People's Republic has surfaced. Beijing, we are told, has found the right balance between state and market forces, and is best positioned to exploit exciting new technologies, such as big data and artificial intelligence. Politically fractured and economically sclerotic western nations can only look on in envy.


Dinny McMahon, a former financial journalist and mandarin speaker who spent many years reporting on the Middle Kingdom, doesn't buy this line. In his view, China's economy has spent years locked in continuous stimulus mode, accumulating bad debts and generating great economic imbalances along the way. This is not an original thesis. But it's a welcome reality check on the current China hype. Of the many books that have observed the fragility and contradictions of China's economic model, "China's Great Wall of Debt" is the best. McMahon writes well, has a fine eye for detail and finds original stories to illustrate his argument.


Since the financial crisis of 2008, China's economic growth has depended less on exports than on rising levels of domestic investment. Capital spending is mostly directed at construction, which directly accounts for some 20 percent of China's gross domestic product and indirectly for much more. The long construction boom has produced dozens of ghost cities - McMahon counts 50 in all - filled with empty apartment blocks. Mighty skyscrapers have sprouted up in unlikely provincial backwaters.


Increasing property supply has been accompanied by rising prices. Sky-high valuations have priced many Chinese workers out of the market, creating a nation of "mortgage slaves" and "ant tribes" - graduates forced to live in cheap properties in urban peripheries. In some super-hot markets like the southern city of Shenzhen, the price of land has exceeded the value of the properties built on it, giving rise to the expression "flour more expensive than bread."


There's nothing in here that you haven't heard Doug Noland [and others] speak of before, but if you're a China watcher, then a second opinion by someone with boots on the ground over there, is certainly worth your while.  This Reuters article, filed from London, was posted on their website at 7:14 a.m. EST on Friday morning -- and it's the second contribution of the day from Richard Saler.  Another link to it is here.

Alabama approves sales tax exemption for bullion starting June 1

Alabama numismatists and coin businesses are likely elated this week after a sales-and-use tax exemption on U.S. coins and currency and precious-metals bullion sales was signed into law.


Alabama became the 37th state with this exemption as Gov. Kay Ivey signed Senate Bill 156 on March 6.

According to the Industry Council for Tangible Assets, the new law exempts proceeds from the sale of gold, silver, platinum and palladium bullion, and money, from sales and use tax for five years. The law goes into effect June 1.


This achievement has been in the works since the summer of 2016, when Phil Darby of J&P Coins and Currency (Helena, Ala.), Steve Caiola of Alabama Gold Refinery, and ICTA representatives joined forces. Darby and Caiola hired Graham Champion of Public Strategies, based in Montgomery, Alabama, as the campaign's lobbyist.


According to ICTA, this change means Alabama is now eligible to host a national coin show. Show promoters tend to avoid conducting shows and convention in states where coins and bullion items are subjected to sales taxes.


Wyoming went this route on Wednesday.  This interesting news item appeared on the Internet site yesterday -- and another link to it is here.


Today's 'critter' is the fearsome-looking hammerhead shark, which in reality is not normally a threat to humans.  Hammerheads are found worldwide in warmer waters along coastlines and continental shelves. Unlike most sharks, hammerheads usually swim in schools during the day, becoming solitary hunters at night.  Click to enlarge.




Today's pop 'blast from the past' is one I've posted before, but it's been quite some time.  It was a huge hit in Europe -- and one of the few that made it big in North America back in 1970 -- and the link is here.  It was composed by French songwriter Hubert Giraud, who also had a hand in this even bigger classic linked here.


Today's classical 'blast from the past is also one I've posted before, but it's been more than a few years.  It's the overture to Romeo and Juliet by Pyotr Ilyich Tchaikovsky.  It's certainly one of his most well know works -- and parts of it have been used in various TV shows and films over the years.  Here's Maestro Valery Gergiev doing the honours with the London Symphony at the 2007 BBC Proms.  The link is here.

Much to my surprise, 'da boyz' were pretty much a no-show when the jobs report came out, although they made certain that the rallies that followed their release didn't get too far.

But it is worth noting that both gold and silver had new intraday low prices set yesterday -- and that would suggest that any 'damage' done after Tuesday's big run-ups in their respective prices has probably been completely reversed, plus a little more, as of the close of trading on Friday.

And as "white-hot bullish" as the current set-up in silver is in the COMEX futures market, there still remains the unresolved issue regarding gold's 200-day moving average.  JPMorgan et al have had two of the dollar index run-up on Thursday -- and again yesterday with the non-farm payrolls report, to do the dirty...but didn't.

What sort of economic news will it take that they can use as cover to blast gold to the downside...if that's their intent?  There's the upcoming FOMC meeting, but that's still ten days away.  By then we'll be coming up hard on the April delivery month in gold -- and it's a well-known fact that 'da boyz' have a tendency to lean on the gold price going into options and futures expiry, so they may be waiting until then.

Here are the 6-month charts for all four precious metals, plus copper and WTIC.  You should also note that a new intraday low in copper was set yesterday as well.  The 'click to enlarge' feature helps a bit with the first four.






Despite the rosy job numbers yesterday, the U.S. economy, along with the rest of the world's economies are treading water at best.  No amount of money printing has been able to stoke the inflation fires anywhere -- and the central banks are desperate to get some.

There appears to be only one way left for them to get it -- and that's to take their collective feet off of commodity prices.  Most of the price management scheme in the commodities is entirely controlled by the U.S. banking system, with Scotiabank now a very reluctant partner, as it still has a short position in both silver and gold that nobody wants to own.


As may commentators have said over the years, if inflation is what they want, a repricing of gold -- and by extension, all commodities -- is certainly the way to get it.


It's my belief that once JPMorgan decides, with or without reducing their short position in gold any further, then commodity inflation is what we'll get -- and lots of it.


Right now we seem to be in some sort of holding pattern -- and as the weeks and months pass, the concentration of the Big 4 traders in the precious metals, and other commodities as well, becomes more and more pronounced...a fact that I went at great lengths to point out in my commentary on the "Days to Cover" section further up in today's column.  And a cursory glance at the chart in that section, showing the concentration of the short positions of the Big 4 traders vs. the big '5 through 8' traders is pretty much all the proof that you need.


Of course JPMorgan...the Fed's the kingpin in all this -- and when they decide, or are instructed to do so, then all bets will be off to the upside.


With the world choking on debt at all levels...government, business and private...the sooner and faster it can be inflated away, the better.


This continued waiting game is getting tiresome.  But there is certainly an end coming for all this -- and it's my opinion that we won't have much longer to wait.


'Da boyz' are all out of aces -- and only the gold card is left.


That's it for the day -- and the week -- and I'll see you here on Tuesday.



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