Bank Participation Report Update
If it's to be taken seriously, the latest Bank Participation Report from the CFTC shows a completion of the full "wash and rinse" cycle from January. Does this set the stage for a renewed move higher in price? Not necessarily. However, the decks are finally clear should renewed buying interest in paper metal materialize in the weeks ahead.
Before we begin, the usual background:
- The CFTC's Bank Participation Report is issued monthly from a survey taken at the Comex close on the first Tuesday of every month. The report summarizes the combined positions of the four largest U.S. banks (primarily JPM, MorganStanley, Citi, Goldman but occasionally others) and the twenty largest non-U.S. banks (Scotia, HSBC, DeutscheBank, UBS, Barclays and others).
- These reports might be utter nonsense and complete falsifications, designed to mislead and misdirect. Just last year, JPMorgan was fined by the CFTC for "repeatedly submitting inaccurate reports relating to the required reporting of positions". See here: http://www.cftc.gov/PressRoom/PressReleases/pr6968-14
I will leave it up to you, dear reader, to assign or withhold legitimacy to/from the data. My job is simply to report to you on what the data shows and, before you read further, I urge you to review this post from February, the past time I wrote on this subject: http://www.tfmetalsreport.com/blog/6601/banks-run
For the purpose of this post, let's examine just three recent Bank Participation Reports....the report from January 5 with price at $1219, the report from February 3 with price at $1260 and last Friday's report based upon data submitted last Tuesday with price at $1210. Data from the three reports is laid out below:
January 5 GROSS LONG GROSS SHORT TOTAL
U.S. Banks 11,728 37,321 -25,593
Non U.S. Banks 32,985 80,227 -47,242
TOTAL 44,713 117,548 -72,835
February 3 GROSS LONG GROSS SHORT TOTAL
U.S. Banks 9,163 65,901 -56,738
Non U.S. Banks 20,009 96,264 -76,255
TOTAL 29,172 162,165 -132,993
April 7 GROSS LONG GROSS SHORT TOTAL
U.S. Banks 11,404 40,999 -29,595
Non U.S. Banks 23,222 67,814 -44,592
TOTAL 34,626 108,813 -74,187
So, what stands out to you in this data? Here's what I see:
- To manage price and sentiment, The Banks moved to cap the January rally through the issuance of nearly 45,000 naked short contracts between January 5 and February 3. That's the paper equivalent of nearly 140 metric tonnes of gold, conjured up from thin air to meet speculative trading demand.
- The Banks also managed this buying pressure by selling more than 15,000 contracts of their existing long positions. This total move of just over 60,000 contracts served to absorb buying interest, dampen sentiment, cap price and reverse momentum.
- In February and March, recently revised BLSBS data was used as cover to break technical indicators and chart patterns in order to send prices tumbling back lower.
- Into this Spec selling, The Banks actively bought back almost all of the naked short positions they had created earlier in the year.
- As of last Tuesday, the combined NET position of the 24 banks is now back to nearly the exact same level seen on January 5, before the January surge in price.
Wash. Rinse. Repeat.
Does this mean that, with this latest cycle complete, another price rally is imminent? Of course not. However, the combined total GROSS naked short position of the 24 banks is now back to levels last seen at the previous price bottom in December of 2014. So, from these levels, there's no obvious reason for The Banks to act to drive prices lower, either. What we're left with is a range-bound paper market that is looking for a catalyst either way.
As global physical demand remains high and, by all appearances, global physical supply remains tight, the price floor found near $1150 should continue to hold. As it does, renewed fundamental concerns should serve to drive prices gradually higher. Of course, The Banks will only act to suppress any new trend by once again issuing fresh naked paper. However, now that the latest wash-and-rinse cycle is complete, the "space" created on the Banks' books should allow them to issue this fresh paper without first actively moving to rig price even lower.
Be cautious yet optimistic. In 2015, gold is still poised to recover from the late 2014 washout lows. In doing so, it will post its first positive annual return since 2012 and mark a revival of the secular bull market that began in 2002.