What's The Deal?
Jerry Seinfeld once asked: "And what's with Grape Nuts? You open a box...no grapes, no nuts. What's the deal?". Similarly, JPMorgan claims to run a gold vault. But if that vault contains no gold, is it still a gold vault? What's the deal?!?
But this deal is serious business. Serious, indeed. Much has been made of the tremendous drawdown of the Comex gold vaults. From a high of nearly 12MM ounces in early 2012, total (registered and eligible) gold in the vaults has plunged to just 7MM ounces tonight. And registered gold (that which is in good delivery form) has dropped from 3MM ounces earlier this year to just 950,000 ounces Friday.
Some Bullion Banks have seen their vaults nearly emptied, as we saw last week with Brinks. http://jessescrossroadscafe.blogspot.ie/2013/07/brinks-is-being-drained-of-gold-with.html
And now we have the curious case of JPMorgan. Harvey Organ (http://harveyorgan.blogspot.com/) has been diligently monitoring delivery notices for years and the situation with JPMorgan caught his eye about two months ago. I've followed along with interest but it wasn't until the huge withdrawal from JPM's eligible (customer) account on Thursday that I really began to get interested. http://www.zerohedge.com/news/2013-07-19/jpm-eligible-gold-plummets-66-one-day-total-gold-fresh-all-time-low
According to Harvey, the situation is this:
- The drawdown of JPM's eligible account reflects the final settlement of some outstanding delivery notices from May and June. The 90,000 ounce withdrawal on Thursday finally "squared the books" on the customer side.
- However, during the Comex delivery month of June, 5,024 delivery notices were issued by the JPM dealer side (registered) and this gold has yet to be delivered. Important math: 5,024 dealer delivery notices is 502,400 troy ounces of real, actual, good delivery gold. Important calendar information: The notices were for the June13 contract. Monday is July 22.
- As of Friday, the JPM dealer (registered) account only held 390,000 ounces.
Below is the full delivery report from last Thursday:
|GOLD||Report Date: 7/19/2013|
|Troy Ounce||Activity Date: 7/18/2013|
|DEPOSITORY||PREV TOTAL||RECEIVED||WITHDRAWN||NET CHANGE||ADJUSTMENT||TOTAL TODAY|
|HSBC BANK, USA|
|JP MORGAN CHASE BANK NA|
|MANFRA, TORDELLA & BROOKES, INC.|
OK, so what does all this mean?
Simply put, JPM's gold vaults only contain 46,000 ounces of eligible gold. Remember this is unallocated, stored, likely-just-paper certificate gold. In the real deal, registered category, JPM shows 390,000 ounces BUT the are "past due" in delivering 502,000 ounces from June. This leaves them with a real deal deficit of 112,000 ounces. Even if you consider eligible to be actual, free and clear gold, 46,000 minus 112,000 leaves JPM at a current deficit of 66,000 ounces. Oh and did I mention that First Notice Day for the delivery month of August is next Wednesday, the 31st? How many delivery notices and additional ounces will JPM be on the hook for next month? Another 500,000? Probably at least that many.
So, what's a girl to do? It would appear that JPM has two choices:
- Get their hands on some gold. FAST! They need to deliver not only the June notices but those that will be coming for August. Is this why JPM has flipped from a net short Comex gold position of 50,000 contracts to a current net long position that Ted Butler estimates at 75,000 contracts?
- Blow up their custodial arrangement. Basically pull an ABM AMRO. Cash settle at the current bid everyone with gold certificates held at the bank. http://www.silverdoctors.com/dutch-bank-abn-amro-halts-physical-gold-delivery/ & http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/4/22_Maguire_-_Elaborates_On_The_LBMA_Default_%26_Ensuing_Panic.html
Neither option is particularly good for JPM but both options are extremely good for those hoping and planning for the end of the decades-long fractional reserve bullion banking scheme.
Of course, there is another route that we need to be aware of: The Classic Gold Cartel Beatdown. The Monkey kneejerk reaction may simply be to raid price in order to keep the current game going a bit longer. The Cartel has long employed a price smash right before First Notice Day with the intent of "dissuading" as many as possible from taking delivery. ("Why stand this month? If prices are falling, maybe I can buy cheaper two months from now!")
Additionally, as I pointed out two weeks ago, a new pattern has emerged where prices are smashed like clockwork, right in the middle of delivery months, often right around the 12th of the month. (http://www.tfmetalsreport.com/blog/4827/pattern-emerges) Maybe The Cartel holds off on another manufactured decline until they see how many stand for August and then put the hammer down three weeks from today?
Either way, the alternative for JPM is to raid price and hopefully inspire enough panic capitulation that the GLD sheds another 100 metric tonnes or so. JPM, as an Authorized Participant, could then lay claim to a large chunk of this metal and deal it out to those standing in August and those leftover from June.
Now if that frightens you, it shouldn't. Each successive raid only leads to greater and greater physical demand, particularly from Eastern central banks. By raiding price in order to plunder the GLD, JPM would simply be digging their hole even deeper. Sure, they may put off their Day of Reckoning for a few weeks but they won't have fixed their main problem, which is:
JPMORGAN IS A BULLION BANK WHICH HAS NO ACTUAL BULLION.
And so we've come full circle and arrived back at the original question: If a gold vault contains no gold, is it still a gold vault? And if JPM, and by extension The Comex, has no gold, how much longer can the current fractional reserve, leveraged and rehypothecated system of gold price suppression continue?
Chew on that and get ready for a very interesting week.
p.s. And what's the deal with The Professor? He can make a radio out of a coconut but he can't fix a hole in the boat? What's the deal?!?