Gold Daily and Silver Weekly Charts - Friday the 13th - JPM's Comex Deliveries

"The Fed can expand its Balance Sheet to kingdom come, but they cannot produce a single ounce of actual gold bullion in the process.

And that is why gold is such an emotional topic, so feared and derided in turn by those whose power is based on position and paper, because gold resists the forces of fiat money and the human will by its mere stubborn existence."

Jesse

I had the opportunity last night to discuss things with a few old friends, from around the world in fact, and thanks to some helpful folks I was able to get a better idea of the mechanics of delivery at the Comex.

There was intraday commentary about the delivery process for gold at the Comex here.

I have to admit that this gold situation has me interested. There are some odd things happening, and I suppose digging into things one might not ordinarily care about is what must to done to understand them better.

There is nothing of science in this, no particular body of knowledge, but just some secular process and jargon, and some exchange rules that one has to learn in order to understand what is going on better. Since I would never even consider taking delivery from the Comex for anything, it a level of detail that I don't expect to come in handy anytime in the future.

But I can see now that the Comex is more of a paper exchange than I had previously suspected, and is dominated by a relatively small number of players. I would like to think that this is a change from what I was more familiar with in the 1990's and early 2000's, but at that point I was trading in energy and commodities where delivery did not even come up in passing.

What I would really like to find out is the distribution of inventory outside the Comex, especially what encumbrances exist on central bank gold, and especially the harder figures on inventory at the LBMA.

But like the physical market, it seems like a lot of the inventory information is heading east. I don't know how much data will be released from the new Asian exchanges, but that is clearly where the action is moving.

I will be interested to see what kind of December we will end up having, given the 'December gold manipulation' pattern we saw the last couple of years. You can click on the label at the end of this for more info.

JPM is taking quite a bit of gold delivery and at this rate *could* end up with most of the registered gold at the Comex. What they are up to in this I cannot say. Someone suggested they could use it to hammer price during January and February as they did early this year. I don't think they have enough runway to really pull that one off, but I won't underestimate their aggressiveness in swinging the trade their way. One only has to look at the massive declines in inventories in the first half of this year to get an idea of what was thrown at the market. And JPM was a big seller.

Jim Sinclair and Ted Butler think that these smackdowns are used for the Banks to fill their own inventories and cover and even get long, and there is some merit in that as well. I cannot say since I am not sure I have enough data to know. You really have to see a traders whole book and not just their trades in one market to get the bigger picture.

Have a pleasant evening.

 

Comex Claims Per Deliverable Ounce Up Again To 62

The setup for this year end looks interesting.  Open interest for December itself has declined somewhat from last year, but the availability of gold for delivery at these prices has fallen quite precipitously.  Rik Green has some things to say about this here.

The standard manipulation play has been to hit the prices hard, and hope to shake out weak hands as well as pry more bullion from the ETFs which the bullion banks manage.   This was done in early December 2011, and prices recovered their level by the end of January.  In December 2012 the great price decline of 2013 was already underway, in a reaction to the denial of Germany's request for the return of their nation's gold.

A conventional pricing action this December would set up a potential short squeeze into the new year that could prove to be impressive once it got going.  And it might become uncontrollable should a run develop since it would also presumably increase the physical offtake in the broader markets.   Wiser therefore to take some of the dirtier money off the table now, and let the market regain some of its equilibrium before the end of year.

This is of interest only for those who look at markets in greater than two week increments, which is not one of Wall Street's stronger suits.  One should not underestimate the brazen audacity of the TBTF gang.  They have been said to sell their customers very bad advice and deadly poisoned deals with near impunity, or haven't you heard?

So it is hard to say exactly how these things will be resolved since the greater physical market, the dog that is being wagged by the Comex tail, is still too opaque for reliable forecasting.  But I do not see how this can end any way but messily, unless cooler heads prevail fairly soon.

Let's see what happens.

Gold Daily and Silver Weekly Charts - Don't Fear the Reaper

"Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood.

For these few gold has been the asset of last resort."

Antony C. Sutton


"Like liberty, gold never stays where it is undervalued."

J. S. Morrill

Gold and silver were being capped most of the day on rather light volumes.

The CME inventory report for yesterday shows JPM was again the reaper for the bullion banks, bringing in 32,150 ounces of gold bullion to customer storage.   It appears that 1 bar each left the customer vaults of HSBC and Scotia Mocatta.  There was no change to the deliverable category.

As a reminder, next Monday the 28th is an expiration for November options on the Comex.  November is not a particularly big month for the gold and silver futures.

The mining stocks were hit today along with a general pullback in equities.  That often concerns those who watch them because it can signal a bear raid in the metals, with wiseguys positioning in related markets ahead of the hit.  But let's see what happens.

There seems to be a seasonal manipulation in gold and silver during December, most likely tied into year end shenanigans perhaps.   You can read prior articles about this here.

If they do that sort of thing again this year, I think they might be setting themselves up for a difficult first quarter with regard to available physical supply for delivery. It seems that the wiseguys will hit the wall again, taking it just a bit too far in short term greed, but one can always hope that wiser heads might prevail. If they do something and it doesn't break, the immature tend to double down and do it again. And again. And then it ends, badly.

Despite the antics, the structure of the physical gold bullion holdings in the US markets looks a bit stretched on the downside.  I am growing ever more persuaded that higher prices will be required to bring more metal to meet market delivery demands.   But since there has been a massive drawdown in the ETFs in the face of unrelenting demand for physical gold out of Asia, it could be a good trick. 

Better that they start earlier rather than later.  An exchange failure is not a desirable event.  And if a major scandal hits the Fed, it could not come at a worse time for them since they will be facing a massive confidence game next year with regard to tapering. 

Gold is flowing from West to East. This is something that obtain very little recognition in the mainstream media, and certainly not on from the financial media spokesmodels who appear as though they would be quite comfortable serving as the jaded but carefree hosts and hostesses for The Hunger Games.

As for me, I am ready for a perfect Manhattan, up with a twist. It's been a rather long week already. As Chekhov once said, "Any fool can face a crisis; it's the day to day living that wears you out."

Have a pleasant evening.

Tremors and Warnings in the Gold Market

"Here and there an individual or group dares to love, and rises to the majestic heights of moral maturity. So in a real sense this is a great time to be alive. Therefore, I am not yet discouraged about the future.

Granted that the easygoing optimism of yesterday is impossible.

Granted that those who pioneer in the struggle for peace and freedom will still face uncomfortable jail terms, painful threats of death; they will still be battered by the storms of persecution, leading them to the nagging feeling that they can no longer bear such a heavy burden, and the temptation of wanting to retreat to a more quiet and serene life.

Granted that we face a world crisis which leaves us standing so often amid the surging murmur of life's restless sea. But every crisis has both its dangers and its opportunities. It can spell either salvation or doom. In a dark confused world the kingdom of God may yet reign in the hearts of men."

Martin Luther King


"However, I have learned that in times of crisis, the dodos always charge in to make matters worse."

Andrew Greeley

Here are three charts that capture the somewhat uniquely dangerous situation in the gold futures market on the Comex.  It reminds me of watching a child playing with a chemistry set, or a drunk getting behind the wheel of a car.  Disaster is not assured, but the situation cries out for adult supervision and intervention.

The first chart shows all gold in storage at Comex certified private warehouses. The major bullion banks control the vast majority of this storage. Among these are JPM, HSBC, Scotia Mocatta. Storage and delivery services are also provided by Brinks and Manfra, Tordella, and Brookes, a large NYC coin and bar dealer.

The year long decline in open interest on the Comex is a phenomenon worth noting. It is marked on the third chart.   Even as gold bullion purchasing is soaring, gold futures interest in the US is in a secular decline.   But even with this decline, the 'claims' of ownership as represented by futures contracts over ALL gold in the warehouses is a bit high.

Not to say that futures contract owners can have any claim on gold merely held in storage.  But they can try.   I include this because some people consider it to be important.  If the price is allowed to rise high enough, that customer gold might be tempted into the deliverable category and offered for sale.  The key question is 'how high.'

The better metric to watch is the number of claims per registered, or deliverable ounces of bullion on the Comex.  This gives us a current 'temperature reading.'   And that measure remains near all time highs at 52.62 claims per ounce at these prices.   My friend Nick Laird at Sharelynx, who does a wonderful job of charting and data gathering, prefers to call it 'owners per ounce.'   But since a single ounce of gold cannot have 53 owners if the music stops, I prefer to call them 'claims' or virtual ownership.

Every prior deep decline in registered gold bullion during this bull market has marked an intermediate price trend change.   I do not think this time will be different, all other things being equal.

What exacerbates this situation is the absolutely remarkable drawdown in gold bullion from the ETFs around the world, but most heavily in GLD and on the Comex.   We have not seen anything like this in silver, platinum, or palladium.  It is significant.  See The Amazing Disappearing Gold Bullion

As you know, I am persuaded that the request from the Bundesbank for the return of Germany's gold, and the deferral of this by the Fed for seven years, set off a chain of overreactions and market maneuvers that in retrospect will be viewed as foolhardy.

If the price of gold is allowed to rise closer to the $1650 to $1750 trading range by the end of January, preferably the end of December,  I think the Comex might avert what for them could become a potentially disastrous situation.   And they need to get started on this fairly quickly so that the rise is gradual and controllable. The higher it riser this year, the less pressure there will be on physical gold early next year.

If the bullion banks continue to game the system, and scalp profits with other peoples' money,  my forecast is for a market break and dislocation in the gold market that will imperil quite a few smaller trading houses, and greatly impact confidence and global trade.  I would not be surprised to see a halt called to the paper and physical gold trade, a forced cash settlement on futures and derivatives, and a price adjustment higher, perhaps in multiples of triple digits.   Such price jumps can be unsettling well beyond their immediate circles of interest.

And we could see a TBTF bullion bank or two shaken to their foundations.  If the governments overreact in trying to get them out of their own mess again without loss or reform, then I think it is time to keep your heads down and watch for big changes.  I doubt they could be that clumsy, but most politicians know less about money than most economists, and that is pretty bad.  And they are certainly as craven and pliable, so it is possible.

I have a couple of other forecasts about changing politics in the US, which involves major changes in the current two parties.  People forget that the lifeline of the Republicans and the Democrats as they are now is more current than old in terms of human history.  And a major party change with some splintering and interesting alliances is becoming more probable.

Although it is just a forecast, it looks like the die will be cast in December.  If they try the annual price hit in early December, they might set off a series of unfortunate events as the new year unfolds.

So you might consider this a sort of warning to be watchful, just based on the market mechanics.  It does not have to happen.  But it has been hard to overestimate the reckless stupidity of unbridled greed.

Again, the most likely outcome is the infamous muddle through and the kick of the can down the road, with a rising price in gold as part of an intermediate trend change.  But we are now in a period of high risk, and I don't yet see the right steps being taken to avert it.   Some of that rests on the shoulders of the CFTC, and quite a bit on the exchange, the politicians, and the regulators of the banks.  They need to take the keys away from the drunks and reckless children in their own organizations and in the ones that they oversee.

I do not want to join the doomsayers, those who troll for clicks with ever more dire headlines of impending doom.  It almost gets to be like watching the supermarket tabloids.

All of our problems are soluble, and things are no worse now than they have been many times in the past.  Our parents and grandparents faced much worse, and I personally have seen harder times by far.  But it is getting pretty bad on a secular level, mostly from self-inflicted wounds and corruption.

I wanted to state this unequivocally now because I can see another financial crisis brewing, and if it does come it undoubtedly will be followed by a bunch of hand-wavers running around saying that 'no one could have seen it coming.'  Just like the last two or three financial crises.  Maybe this time the powerful will act with caution and good sense.  I have the impulse to hedge that though, and certainly not to count on it. In their self-centered blindness they are becoming mere players and pawns in the great tide of history.

"The long memory is the most radical idea in America. That long memory has been taken away from us. You haven't gotten it in your schools. You're not getting it on your television. You're being leapfrogged from one crisis to the next. Mass media contributed to that by taking the great movements that we've been through and trivializing important events.

No, our people's history is like one long river. It flows down from way over there. And everything that those people did and everything they lived flows down to me, and I can reach down and take out what I need, if I have the courage to go out and ask questions."

Utah Phillips


"You will study the wisdom of the past, for in a wilderness of conflicting counsels, a trail has there been blazed. You will study the life of mankind, for this is the life you must order, and, to order with wisdom, must know. You will study the precepts of justice, for these are the truths that through you shall come to their hour of triumph. Here is the high emprise, the fine endeavor, the splendid possibility of achievement, to which I summon you and bid you welcome."

Benjamin N. Cardozo

Gold Daily and Silver Weekly Charts - Appearance Versus Reality

As you know I have commented previously about the large drawdowns in gold bullion inventory from the COMEX and GLD among other things. And there is no similar decrease in silver bullion despite an even greater price decline YTD. There is intraday commentary on this here.

I have not yet figured out what is causing this, and I may never find it out. But it does seem to suggest that if gold should break out and run higher there is going to be a grabasstic rush to stake out all the deliverable and allocated bullion that you can find. YTD the gold bullion inventories are down in excess of 700 tonnes, but we see no decline in silver, platinum or palladium inventories across a broad spectrum of publicly disclosing entities.

So capping gold and silver makes a lot of sense here. Let's see how this impasse between supply and demand of real goods plays out into the end of December.

As you may recall we saw big takedowns in the price of gold and silver the past two Decembers. You can click on the two December Manipulation labels at the bottom of this post to see prior comments from last year.

So, one cannot predict what will happen again, but it will most likely be interesting.

Have a pleasant evening.

Gold This Time Last Year - A Faux Deal and Ongoing Currency Wars

The waters are a little muddied this time around because of the fiscal fluff and the January debt ceiling policy scrum to come, but lo and behold, gold rallied sharply on the last day of the year, after a series of repeated hits lower.

How unusual.

New year, same old games.

And Washington announced, in time before the markets close, that they reached a deal, kind of.

No grand bargain, but a deferral.

It looks like the Senate will agree to avert the tax increases for those with less than 450,000 per year in income, arrangements on capital gains, 40% inheritance tax on estates over 5 million, and AMT. It appears they will leave the budget cut wrangling for the debt ceiling fight in January, and possibly every two months next year after that.

The House will not have a chance to vote for it until later this week most likely.

And at the bottom, an update on Jim Rickards on the ongoing currency wars.

Gold: This Time Last Year

As you can see, gold had a 'tap tap' bottom at the end of last year, with a final intraday low on the 29th, the second last trading day of the year.

It rallied in January back to where it had been at the beginning of December.

We may be seeing a repeat of what I think is an 'end-of-year' phenomenon this year.

If so, we *might* see one more low this week, probably tied in with some sort of selloff related to the 'fiscal cliff.'

This sort of thing could be government related but it seems more probable that it is related to the gaming of large short positions as they are marked to market at year end. That, and of course, the obvious price manipulation that allows big players to pick up assets like miners and bullion on the cheap.

The 'bombing' of gold with large contract sell orders in quiet periods is leaving tracks all over the tape, that most can see, except if they are willfully blind.

It would not be surprising if we don't see exactly that double tap bottom again this year. We had an odd overnight plunge to 1649 on futures open after Christmas, and that may mark the bottom.  

We *could* go back down to visit there again, and maybe even the prior double low of 1636 from just before the holiday. If it were me I would consider throwing a curve ball. And maybe hit the metals the first week in January very hard if the specs start jumping ahead of the rally early. Its hard to beat the house in the short term, especially when the cards are stacked, and they can see your hand.

But as Eliot Spitzer observed, when he was the NY Attorney General, what surprised them when they broke the investigation of manipulation by the banks was not the cleverness of their schemes, but the obviousness, the heavy handed, almost clumsy thuggery.

'No time for that. Give me a diablo sandwich, a Dr. Pepper, and make it quick. 
What we're dealing with here is a complete lack of respect for the law. '

Gold and Silver Smackdown: Same Time Last Year

The takedown in gold and silver is fairly obvious, so much so that all but a career bureaucrat might have trouble not noticing it.

So how does one explain it away.

Who is selling this time? Soros? Paulson? And for what reason? Liquidation, redemptions, profit taking, tax selling?

Tax selling is fruitless unless you see a big change in the position coming anyway and are going to sell in the short term, because you sell and then have to buy back in.

Its possible to do it for pure capital gains considerations, but you have to be able to time/set the market price to suit yourself to allow a buy back in without losing on the price. Or you could shift assets from one market to another more adeptly without incurring the wash rule, that is, derivatives and stocks, playing the same fundamental direction if the regulators are asleep at the switch and don't have a look across your positions.

I have been hit several times in the past three weeks by people who claim to have talked to a insider friend who heard from 'high level money managers' in NYC, London, or Tel Aviv, that say that Paulson is facing redemptions and is selling off his GLD position. Everyone wants to be 'in the know.'

Well, I should like to think that these fellows are not cretins, just dumping positions carefully timed in ways to maximize the downside price movements. Unless of course it is purposeful, which there is almost no doubt in my mind that this is. There could be a squeeze on, and front running of forced sales, but the timing makes this a little problematic in my mind.

More likely this is the same thing which we saw last year. The bottom two charts are for gold and silver from last year.

There are any number of ways to explain this.

The one which I favor is that if a certain party is carrying a enormous, and losing, short position, one of the ways to manage the end of year mark to market would be to smack the price down as much as possible, and cover at least part of the short position going into year end, ending around Dec 26 or 27 given the "Buy to Close" rules.

This also provides a method of gaming that long term short position. Not only do you get to mark it at a lower price, but you can 'trade around it,' picking up metal on the cheap as weaker longs capitulate and toss it at the bottom. And the momentum wise guys get in on the action, the trading desks start spreading their rumours and deploy their useful idiot analysts and talking heads, and we have a major price bottom in the making.

For this and some other reasons, I think we see the usual rally in January, as the market starts to correct back to something roughly reflecting physical reality.

The complicating factor is that this time we have the 'fiscal cliff' to consider, and the potential for a liquidation event. That is a littler harder to play.

But Jesse, wouldn't other players in the market see this obvious manipulation and buy against the artificial price declines?

Yes in a theoretical model of independent players in an efficient market with transparent information and the rule of law this would happen. And how many moons orbit your planet, if you think this is reality given all that we have seen in the past five years?

How many scandals do you have to see and try to ignore before you 'get it.' The financial system is broken and corrupted.

As for now, there may be more downside, but most of it is over. Currency manipulation tends to overshoot. And this looks like a manipulation given the way in which all the usual correlations were pitched, and the downward movements were played in dull markets with concentrated selling. 

And I suspect we will be seeing the same thing next December, if the 'big shorts' in the metals are still on and being held by two or three of the big banks. As I recall HSBC is one of the big shorts.  A bank of their size and reputation could not possibly be involved in anything dodgy, with the officials turning a blind eye, could they?

So as always, the message is one of reform. Until there is justice and transparency and the rule of law, you may as well get used to this sort of thing, affecting an increasing portion of your daily lives. Not just precious metals, but the price of gasoline, electricity, natural gas, food, water, other staples, and your children's education.

And they will use their media to turn your anger against---  regulation and the rule of law.

This is not the abuse of 'big government' but the partnership of the monied interests and a corrupted government that is also known as corporatism, or deep capture. And where their interests align, the people should beware. They are becoming ever more open in their actions. And if you wake up and object they say, 'So what? How are you going to stop us?' It is an audacious oligarchy.

There will be no sustainable recovery until the financial system is reformed and the grip of big money on the politicians and bureaucrats is removed.

"It is the neo-liberal idea that has given us deregulation and de-supervision; that has given us the notion that markets can function on their own without breaking down or blowing up..

This is the great illusion of the last generation, and it fostered a form of economic growth that was intrinsically unstable and unsustainable. Why?...

To put it in simple terms, it was based upon financial fraud, on the most massive wave of financial fraud that the world has ever seen."

Jamie Galbraith, IG Metall Conference, Berlin, 6 Dec 2012