Released just this afternoon, the July Bank Participation Report and the latest Commitment of Traders Report are so interesting that I felt they justified this new post.
So, let's dive right in. I'm not going to spend much time talking about silver because the data is somewhat skewed this week by the expiration of the July13 contract. The Large Specs added 3800 net long and the Commercials added 3700 net short, all due to expiration and rollovers and now we see why silver outperformed gold by such a wide margin last week.
The reports for gold, on the other hand, are astonishing. Let's start with the CoT. For the reporting week, price fell by $32 while total OI rose by 19,752 contracts. Check out these internals:
Large Specs dumped another 6,200 longs and added 7,200 additional shorts. This brings their net position down to just 20,700 contracts and drops their total net long ratio down to a preposterously low 1.15:1. Again, for perspective, shortly after QE∞ was announced last fall, the gold Large Specs were net long over 210,000 contracts. This means that, in the time since, they've been coerced into dropping their long exposure by over 90%.
On the all-important flip side, The Gold Cartel added another 21,427 new longs last week through the Tuesday cutoff. Because they also added 8,995 new shorts, their net short position only declined by over 12,000 contracts. However...and here comes the amazing part...their new net short position is just 22,776 contracts, roughly 70 metric tonnes of paper gold, and their updated net short ratio is also preposterously low at 1.12:1.
Remember, this entire "event" from the announcement of QE∞ last fall to today, has been staged in order to give The Bullion Banks the time and the ability to cover their massive paper short position. When QE∞ was announced in September of last year, the total Cartel net short position was 737 metric tonnes of paper gold. As of last Tuesday, they are now net short just 70 metric tonnes. That's an incredible and amazing drop of over 90%.
Now get this, the CoT survey was taken last Tuesday. On Wednesday and Friday of last week, the total dollar move in gold was down another $32. Over those two days, the total open interest n gold rose by 18,561 contracts. It recent form follows, then it is safe to conclude that the vast majority of this new OI was contract initiation on the short side by the Large Specs. If that's the case, then we headed into last weekend with a total Gold Cartel net short position as low as 5,000 contracts. TOTAL!! And now you see why I find this so incredible and amazing.
Next let's consider this month's Bank Participation Report. This aggregated report gives us a once-a-month look at the gross positions of those traders classified as banks, both U.S. and non-U.S. Now check this out...let's start with the report from last October so that you can see from another perspective just how steep the changes have been in the nine months since.
GROSS LONG GROSS SHORT
U.S. Banks 40,625 146,809
Non U.S. Banks 34,881 113,445
TOTAL 75,506 248,254
And now here are the numbers from last month (June). Note that the banks had moved from net short position of 172,748 to a small net long position of 4,582. This got everyone's attention and was well summarized here: https://jessescrossroadscafe.blogspot.com/2013/06/cftc-gold-and-silver-bank-participation.html
GROSS LONG GROSS SHORT
U.S. Banks 56,751 27,129
Non U.S. Banks 24,035 49,075
TOTAL 80,786 76,204
Well, we've all been waiting with baited breath for the July report and it just came in a few minutes ago. Would the banks continue to cover on these falling prices or were they adding to the downside momentum? We got our answer:
GROSS LONG GROSS SHORT
U.S. Banks 69,565 24,939
Non U.S. Banks 34,904 58,565
TOTAL 104,560 83,859
The total net long position grew by over 16,000 contracts to an astounding 20,701. But drill a little deeper...The U.S. banks actually added net longs of 15,000! The only thing holding the overall net position in check was the 9,500 new shorts put on by non U.S. banks (HSBC? Scotia? Barclays? UBS?) Do you think that The Fed warns, plans and advises the non-U.S. banks as clearly and succinctly as they do the U.S. banks?? The Fed IS the U.S. Banks. If Barclays or UBS is too stupid to see what's going on and they are actually adding shorts at these prices, well Hells Bells, go right ahead! Their selling simply allows the U.S. Banks to cover even more!
Look, I know these past nine months have been brutal and we've all suffered through the almost-daily pain of continued losses. But this is almost over! Yes, prices may continue lower, stopping and turning who knows where. However, I am 100% confident in my analysis of The Big Picture here. The major, too-big-to-fail, Fed-Primary-Dealer and Bullion Banks have now fully gotten themselves out from under what had been an extraordinarily wrong-footed net short position of over 146,000 contracts last autumn. They are now net long nearly 45,000 contracts! (And certainly more than that after last Wednesday and Friday.) That flip of 191,000 contracts took place while price declined by 30% from $1800 to $1250 and represents a change of position equaling over 595 metric tonnes.
Please, I beg you, remain patient and continue to stack physical metal. You will soon be rewarded with a rally that will surprise even the most ardent of bulls.