JP Morgan 'House Account Only' Trading in Comex Deliveries for 2013

"Are the hedge funds, HFT’s and algos currently having a field day with this worn out trade paying any attention to the steady drain of physical gold on which their speculations are based? As is usually the case in a temporarily successful momentum trade where almost the entire universe is aboard, the answer is probably not."

John Hathaway, The Big Picture in Gold

Here is a chart that I was able to construct from CME data that shows JP Morgan's Comex Gold Delivery activity for their 'house account' only.

I have marked the nominal price of gold on the chart for this year. The last data is as of December 10, 2013.

The months marked with boxes are 'active months' for the delivery process. December is also an active month.

They seem to have had quite a good year for themselves so far. 

For those who would like some color commentary, JPM came into February issuing deliveries to beat the band.  They were quiet in the inactive month and then back swinging hard and delivering in size during April.

In August JPM stopped or took delivery on quite a chunk of gold bullion and the price recovered a bit from its first half of the year pounding.  I can conceptualize this as 'covering' what they have issued in the first half of the year.

Since then the gold price slumped back down into November.   JPM started taking deliveries (stopping) again very heavily in December.   I hear they are stopping something over 90% of warrants issued.

However for the year, and for the year only, their net position is still about 7,600 more contracts issued than stopped in their house account.   This is down from a high of 14,600 contract net issued which they maintained from about April through July. 

I have just added a second chart that shows just the rolling 'net position' for their house account with regard to deliveries for the year.   Just for the sake of tracking their notional position for the year I am going to refer to this as their 'short' although they could just be selling from any inventory which they had somewhere or from the prior year.   And please bear in mind that while this chart show a position that is all negative for the year,  I wanted to be able to plot it against the price of gold, so I inverted the Y axis.

Whether this represents an actual short position or not depends on their opening inventory of gold bullion owned by them, how much of the gold delivered was rehypothecated or leased, and how those contracts were actually settled, be it in equivalent instruments, cash, or actual bullion from whatever sources.

I know this is not all the data we would like to see, and does not begin to address their offsetting positions in other transactions and markets like derivatives.  

And of course I am sure that this is all 'just a hedge' being done in the CTO risk management area, just like the London whale.

Speaking of gold market antics, GATA just sent out this delightful presentation from the Banque de France entitled Managing Gold as a Central Bank.

And here is The Big Picture In Gold by John Hathaway which I recommend that you read.

And the band played on.

Have a pleasant weekend.

Gold Daily and Silver Weekly Charts - 146,000 Ounces Come Out of JPM's Registered Inventory

There were a few notable changes in the Comex gold warehouse inventory yesterday, as 146,000 ounces of gold had their warrants cancelled and were adjusted from 'registered' to 'eligible.'

What is particularly interesting about this is that it knocked the deliverables down back down to 600,000 ounces, with almost half of those held by Scotia Mocatta.

It would certainly be interesting if we knew exactly who held what, and what their net positions might be.   And it would certainly be fun if I knew everything I want to know, and had everything I want to have.  But life is a struggle to find out how things work, and it is especially hard to discover what has been hidden for whatever reason.

There is another interesting chart that Nick and I produced that shows what JPM stopped and issued in terms of Comex gold contracts over the past twelve months.  As you will recall when a party 'stops' a warrant they are taking delivery, and when they issue a warrant they are offering gold for sale. 

I don't think this sorts out what JPM is doing for its house account versus what they are doing overall as a bullion bank.  I may take a crack at that later on.

So obviously some of this is just pure correlation with what customers are doing, ie. selling on price declines, and then buying bottoms and riding it back up. 

What is interesting is the huge spike in year end buying (stopping) of contracts that has not yet been reflected in price.   I am watching this with care, because as you may remember we have seen these big dips in registered inventory signal an intermediate price change within six months, at least within the last ten years of this bull market.

I know quite a few people are getting edgy on this correction and I can't blame them for that.  But that does not mean that someone is going to be able to tell them with high certainty that the market has bottomed and the correction is over so that they can immediately rush out and put in leveraged bull bets and make a fortune. 

There are those who will tell you that, many, many times in fact, almost every other week it seems.  And when and if a turn does come, they will point to that 'call' and say see I was right, and forget about the ninety other times they were wrong. 

It does not work like that.  We will get a confirmation if we get a trend change, and you *might* miss the first ten percent of the up move by waiting.  But you will also miss a lot of wear and tear on yourself and your portfolio in the process.  Most traders who sell the top and buy the bottom with precision are either darn lucky or damn liars.   At least that is what Bernard Baruch says and my own experience tends to validate that.

I do think we are in a bottoming process and the emphasis here is on process.  If we are holding positions without leverage and a longer term time horizon, what difference does it make if the trend change comes next week or next month or even five months from now?  What is important are the fundamentals and the trend. 

I do have both a long term and a short term portfolio.  The long term I have not touched in some years.  The short term has been adjusted to match my thoughts on the current market structure, a little more aggressively than normal perhaps.

I have modified my thinking about Comex a bit, now seeing how much of an insiders' shell game it has become because of the laxity over positions and price antics, and the high amount of paper shuffling and opaque positioning that occurs relative to how much actual clearing of markets between producers and buyers is accomplished.  But it is what it is: a speculative vehicle.  And its role in world markets is changing, diminishing most likely.

Have a pleasant weekend.

SP 500 and NDX Futures Daily Charts - The Pause that Refreshes Before FOMC Next Week

Stocks were treading water this week ahead of the FOMC decision next week.

I think that even though there may be more taper talk that the Fed will not doing anything substantial.

Even if they do taper, we have to keep in mind that this is a cutback on the 80+ billion in monthly liquidity the Fed injects into the financial system by buying Treasuries and Mortgage debt.

But I do think that the discussion about what they will do will be about as substantial as what they actually end up doing which is pretty much nothing.

Have a pleasant weekend.

JP Morgan Stood 'At the Very Center of Madoff's Fraud for Over 20 Years'

I am posting this to make sure we all know that JP Morgan is no passive bank, that occasionally becomes involved with financial criminals like Madoff or the MF Global crowd.

The criminal charges are likely to be a 'deferred prosecution' which means that while JPM may admit to wrongdoing, unusual in the vast majority of settlements for financial crimes, there will in fact be no prosecution or revelations in court.

This is why the 'stimulus' of the Keynesians will not work. They have skipped the critical step in the FDR framework of reforming the financial system, or at least making a serious intent to do so. As it is, Dodd-Frank turned out to be the terms of surrender of the republic which Wall Street dictated to its servants in the government.

The tragedy of our day may have been the financialisation of the Democratic party and the evisceration of the progressive movement, which helped to remove the last remaining significant political serving the people as a counterbalance to those elements of society which have become the servile mouthpiece for Big Business and Big Money, no matter what ideological disguises or social niceties which they may wish to put upon their intentions.

As for any necessary complicity in the abuses of the world, we have the power of our refusal: our refusal to participate in the madness, to be seduced by it, to become a part of it.

Why speak out? Why attempt to do anything? Because someday we may wish, at the very least, to be able to look our grandchildren and great-grandchildren in their eyes and say, "I did what I could. I was not silent. I am sorry that I could not have done more. But I did not forget you." And for me my poor parents, both gone now these many years, will know, wherever they may be, that I did not dishonor their memory.

And we may now reread history and discover that this is the challenge of every generation and the rule of our cause, to be in the world, but not of its worst elements. Not to shun the world, but to be a comfort, and a shield, and a source of hope to our friends, our families, and so importantly, to its victims.

"Picard told the Supreme Court that JPMorgan stood “at the very center of Madoff’s fraud for over 20 years.” Picard bases this claim on his lower court filing that showed JPMorgan was well aware that Madoff was claiming to invest tens of billions of dollars in a strategy that involved buying large cap stocks in the Standard and Poor’s 500 index while simultaneously hedging with options. But the Madoff firm’s primary bank account at JPMorgan, which the bank had intimate access to review for over 20 years, was devoid of evidence of stock or options trading.

The petition to the Supreme Court reads: “As JPM [JPMorgan] was well aware, billions of dollars flowed from customers into the 703 account, without being segregated in any fashion. Billions flowed out, some to customers and others to Madoff’s friends in suspicious and repetitive round-trip transactions. But in the 22 years that JPM maintained the 703 account, there was not a single check or wire to a clearing house, securities exchange, or anyone who might be connected with the purchase of securities. All the while, JPM knew that Madoff was using the account to run an investment advisory business with thousands of customers and billions under management and knew that Madoff was using its name to lend legitimacy to his enterprise."

Pam Martens, JPM May Face Criminal Charges Over Madoff

Read the entire piece here.

Holding Gold or Silver In Unallocated Storage Or in ETFs and Brokerage Accounts

"This is what economics now does. It tells the young and susceptible (and also the old and vulnerable) that economic life has no content of power and politics because the Firm is safely subordinate to the market and the state, and for this reason it is safely at the command of the consumer and citizen.

Such an economics is not neutral. It is the influential and invaluable ally of those whose exercise of power depends on an acquiescent public. If the state is the executive committee of the great corporation and the planning system, it is partly because neoclassical economics is its instrument for neutralizing the suspicion that this is so.”

John Kenneth Galbraith, Power and the Useful Economist

This is not a criticism on any particular precious metal institution, mint, bank, or brokerage. Rather, it is the new normal, a sign of the times.

Trust is a commodity that is in short supply, and for some very good reasons having to do with some longer term trends that I would hope are reaching their zenith.

I know that safe diversification is not always easy to accomplish.

These are the post-MF Global times in which we live.

The ultimate solution will be to reinstate a political system that is responsive to and serves the needs of its own people as its first priority, and not the interests of a global overclass as described by David Malone in The Emerging New World Order.

The most powerful impediment to this reform is the marriage of political power and big money, and the reduction of fundamental values such as freedom and dignity to mere accounting entries in the inhuman calculus of corporate selfishness and greed.   If there is any room for unreasoning optimism it is that these trends tend to be cyclical, and we have been on this current trajectory for the past forty years.

“In the old framework, cash was a risk-free asset.

In the new paradigm of systemic risks, no asset (even cash) is risk-free so long as it is in custody of a financial institution. Investors and depositors no longer have clear title to their own assets if they are held in financial accounts.

There is now a body of law (including Dodd-Frank) that allows custodial assets to be swept into the bankruptcy estate and be subordinated to senior claims.

Hand in hand with the evolution of the banking laws is the subtle but pernicious evolution of the practice of banking: “Various rules and practices have made it almost impossible to use cash and securities. Go try to make large cash withdrawal or cash deposit and see what paperwork you would be forced to complete.”

Simon Mikhailovich, Eidesis Capital LLC, Grant's Interest Rate Observer Nov 15

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.