More Deception at The Comex

219
Thu, Oct 24, 2013 - 11:25am

This latest move is so brazen in its audacity, even I am stunned. But, since no one else is talking about it, maybe I'm just crazy. Let me lay it out for you and you can decide for yourself.

OK, before we get started, we'd better go back and cover the basics.

The Comex is a futures exchange that does, occasionally, make physical deliveries. To provide for these deliveries, five banks maintain depository vaults in New York. Updates on the daily changes to the amount of metal in these vaults is provided by The CME Group, which owns The Comex, and can be found here: https://www.cmegroup.com/trading/energy/nymex-delivery-notices.html

Within these vaults, metal is delegated to two categories, eligible and registered.

  • Eligible metal is metal being vaulted at the bank warehouse but NOT eligible to be used in the delivery process.
  • Registered metal is metal that is recognized by the CME as available for good delivery against futures contracts.
  • I went searching for a concise explanation of the eligible/registered process and, in the short time I had this morning, the best article I found comes from BullionVault. The article was meant to downplay the significance of declining Comex stocks. Many folks, myself included, would disagree with the author's conclusion. Regardless, that's a topic for another day. In this instance, what's helpful is the background info the author provides. The full link is here but please read through the C&P below: https://goldnews.bullionvault.com/comex-gold-stocks-072420136

    First question: How does gold get into warehouse stocks of the futures exchange? Although it's a lengthy process, the answer is actually quite simple. Gold is recovered either from mine output or scrap jewelry and other products, such as bars and coins, at a refinery. The refiner then produces gold bars to the standard and specification of the exchange, in this case the CME Group.
    These gold bars belong either to the refiners themselves, meaning they have bought and own the gold. Or they belong to the refiner's customers, who bought and owned the gold at the refinery, hiring it to make that metal into saleable bars.
    Now, for this particular refinery to deliver metal onto the commodities exchange, it must be a registered acceptable brand, such as Heraeus, Johnson Matthey or Metalor Technologies to name a few.
    Once these gold bars are produced, the metal must then be transported to the warehouse by exchange-approved carriers such as Brinks Inc., Via Mat International or IBI Armored Inc. There is no other way for the gold to get onto the exchange. Gold may move between Comex-approved warehouses, such as those operated by HSBC Bank, Brinks Inc., and Scotia Mocatta Depository. But any moves made between these warehouses must be made using the same approved carriers. No gold can enter the marketplace from outside of this refining loop.

    Once gold is removed from an exchange-approved warehouse and held somewhere outside of this circle of integrity, there is no way for the CME exchange to guarantee the bar's quality. This means that once a person or investor removes bars from the warehouse, then to return them to the exchange they would need to start at the beginning again. By going through the hands of the gold processor and refiners, this provides guarantee of the standard and quality of the material being delivered on the exchange.


    So with the gold inside the warehouse, second question: When is the gold considered eligible or registered on the commodities exchange?
    Answer: When acceptable bars are brought into an exchange-approved warehouse they become "eligible" for settlement of gold futures contracts traded on the exchange. So at this point, the owner of the bars may deliver them onto the exchange, and warehouse receipts are created. That is when the gold bars become "registered" stocks.

    Eligible gold stocks may or may not ever become registered stocks. Why? Because the warehouse is still a warehouse and the owner may simply want to vault their metal securely, before using it to meet demand elsewhere – for manufacturing, or from investors in another marketplace, such as Asia. This eligible gold may belong to an investor, a refiner, a hedge fund, a bank or producer. Many times these people are holding the metal for their end customers. And it may move at any time, and is much more flexible than the warehouse receipts that are registered stocks.
    The CME, the exchange, does not have any direct control over nor interest in the size of eligible stocks. Registered stocks however are officially recognized by the CME for good delivery on the exchange. That means that this inventory exists and is set aside to make delivery against gold futures contracts. Traders who stand for delivery, rather than cash payment, when their contract settles take delivery of the warehouse receipt. This does not change the quantity of registered stocks inside the warehouse. It remains registered, but the receipt changes ownership.
    If a gold futures buyer wants to take physical delivery of the gold and "break" the receipt then this is possible. But it is a process and takes time. Once broken, if the gold remains in the exchange circle of integrity – meaning the exchange-approved warehouse – then those bars become eligible stocks. But if the gold bars are removed from the exchange-approved warehouse then they no longer are eligible and are no longer tracked in any way.

    Third question then: How do the warehouse receipts work?
    A warehouse receipt is a bearer instrument much like a check. It can be endorsed from one party to another. The holder of the receipt pays the storage costs. Most times when people take delivery of a warehouse receipt they leave it with their brokers. In some cases people may want to take possession of the warehouse receipt themselves. This is rare, just like with equity or bond certificates; no one actually takes delivery of the documents any longer. But it is still possible for a fee.
    If a person owns a warehouse receipt, the gold that it represents is still in the registered stocks, even if they have taken physical delivery of the document. They can always redeliver these receipts onto the exchange by selling contracts.

    OK, hopefully this all makes sense because now I'm going to present to you the problem. In the article and on the CME website, the notion of paper gold is never addressed. Yes, there are warehouse receipts that some fools willingly accept at delivery, thinking they have a claim to actual gold. BUT...the metal that is "held for storage" in the depositories is assumed to be REAL METAL, held there on behalf of REAL CLIENTS. Registered gold backstops the delivery process of the exchange. Eligible gold may, one day, become registered and ready for delivery. More likely, it is simply being vaulted at the depository for safekeeping. Please take a moment to go back up and re-read the BullionVault piece, paying particular attention to the sentences I've underlined.

    As mentioned above, each afternoon the CME Group issues a "Gold Stocks" and "Silver Stocks" report. Some typical reports are posted below. Note how some days there is minimal activity and some days have significant activity. However, note the attention to detail. All bars are assayed and weighed to within thousandths of an ounce.

    First, let's study the report from October 8, 2013. Click on it to enlarge it and notice that vault movements are all measured in thousandths of a troy ounce. For example, on this day Brinks received into their registered vault 1,699.940 troy ounces and JPMorgan saw 708.704 ounces removed from their eligible vault.

    Below are two other reports, dated 9/30/13 and 10/17/13. Again, note the precision of the measurements as great caution is apparently taken to ensure that the metal is properly logged and accounted for.

    So, now, here's where the fun starts. Back on Friday, we noted an unusually large addition to the JPMorgan eligible vault. The sheer size of it caught my eye and you can see it on the report below. Note the other reported vault movements that day and then see if anything about the JPM data catches your eye.

    Hmmmm....While HSBC and Scotia posted the usual moves in thousandths of an ounce, the JPM eligible addition is a flat, round number. Not only that, the round number in question is 192,900.000 troy ounces. What is so significant about that number? Well, the generally-accepted number of ounces in a metric ton is 32,150. If you multiply that number by six, you get 192,900. So, last Friday, JPMorgan booked into their eligible account exactly and precisely six metric tonnes of gold. Now, maybe by some magical occurrence they weighed and assayed each bar and the total amazingly came to 192,900.000 but to me that seems statistically improbable. But with no access to the vaults we're left with simply taking their word for it.

    Imagine my disgust shock when I saw the next gold stocks report on Monday. Not only did JPMorgan magically book in another precise and round number, the actual increase in eligible gold was reported as 96,450.000 ounces. You're probably pretty good with math so I imagine you've already figured out that that is precisely three metric tonnes. Willing (forced) to give JPM the benefit of the doubt on Friday, we can no longer do so here. EXACTLY SIX METRIC TONNES ON FRIDAY. EXACTLY THREE METRIC TONNES ON MONDAY.

    And then we get to yesterday. After a non-event, empty report on Tuesday, what do you think we saw yesterday? Could JPMorgan have the audacity to report another round number multiple of one metric ton? Nope. They simply reported one metric ton! Again, nothing to the right of the decimal point. Just 32,150.000 troy ounces, exact and on the nose.

    So what do we make to of this? We're supposed to believe that, over the last four days, JPMorgan has brought in EXACTLY 10 metric tonnes of gold into their eligible account. In precise and detailed fashion, this massive deposit of gold from a customer(s) measured out to be exactly 321,500.000 troy ounces. RRRrrrrright.....Only the most ardent Cartel apologist and disinfo agent would be willing to swallow that one.

    Here's what I think is going on:

    • The deposits are bullshit. Either completely fabricated and falsified OR simple paper claims. It's one or the other due to the simple statistical improbability of three consecutive round numbers totaling exactly 10 metric tonnes.
    • Recall that back in 2007, Morgan Stanley paid $4.4MM to customers to settle a lawsuit brought by customers who had been charged storage fees on paper metal. https://www.reuters.com/article/2007/06/12/idUSN1228014520070612
    • Is JPMorgan pulling the same trick now? Given the laundry list of their other fines since 2011, I wouldn't put it past them. https://www.thedailybeast.com/articles/2013/05/08/jpmorgan-chase-s-crazy-fine-tally.html
    • If this isn't another JPM client-screwjy awaiting a lawsuit, then The Comex and, by extension The CME Group, is allowing JPMorgan to fraudulently goose their warehouse stocks ahead of the all-important December delivery period to give a false impression of solvency. The World Gold Council-owned BullionVault may not think that the lowest stocks since 2005 is a big deal but plenty of other folks due, most notably Jesse. He's been diligently tracking the daily changes for months. Click this latest update and be sure to review the charts: https://jessescrossroadscafe.blogspot.com/2013/10/tremors-and-warnings-in-gold-market.html
    • Lastly, the brazenness of the operation must be noted. No effort is made to conceal it. The CME Group simply reports the statistically-outrageous numbers and no one notices or cares. We're just supposed to believe that JPMorgan's eligible vault can nearly double in size in just over two weeks and that's all fine, dandy and business as usual.

    Well, it's NOT business as usual. The extraordinary and counter-intuitive price raids, the massive depletion of the GLD, persistent backwardation in the GOFO rates and JPMorgan's cornering, 70,000-contract, NET LONG gold futures position all warn you that we are in uncharted territory and major changes are afoot. This eligible gold deception currently being employed by The Comex is just another indicator.

    By the looks of it, the end of the fractional reserve bullion banking system is rapidly approaching. Keep stacking and prepare accordingly.

    TF

    November 4 UPDATE:

    In the past week, much has been made that the opinions stated above could be somehow construed as fact. Though I clearly began this piece with the disclaimer of "decide for yourself", some still seem to think this post needs a counter-argument. Since all of the Comex data is deliberately opaque and, in the words of The CME itself "not reliable", I figured I might as well give some attention to an alternate theory first supposed by Bron Suckeki of the Perth Mint.

    Bron thinks that the entire 10 mts of eligible stock can be easily attributed to 1-kg bars. OK, who knows? Maybe he's right. His primary points are below:

    TF, which of these do you think are facts and which are opinions one could be right or wrong about:
    1. Comex rules allow for 1kg bars
    2. A 1kg bar weighs 32.15oz
    3. 32.15 x 6000 = 192900
    4. 192900 is therefore not statistically impossible


    I'm not looking for an apology, but I think given the above facts, your original post requires a note to inform future readers that while you think Comex stocks are "bullshit", the round 192900 figure is possible and can't be used to prove the stocks are "bullshit".

    So, anyway, there you have it. An alternate theory. Take it or leave it and, as originally stated, decide for yourself.

    TF

    About the Author

    Founder
    turd [at] tfmetalsreport [dot] com ()

      219 Comments

      Refresh
    Spartacus Rex
    Nov 5, 2013 - 2:39pm

    Man, That Was Mighty Damn Nice of You TF, Kudos!

    Editing a 2 Week Old Post is definitely Above & Beyond!

    foggyroad
    Nov 4, 2013 - 10:00pm

    CME self regulating?

    How can the CME be self regulating if it doesn't confirm/audit member claims for accuracy?

    Note disclaimer on bottom of chart.

    Seems to me the disclaimer is an abrogation of self regulation, if so, just exactly who is keeping things above board at the CME?

    Maybe Bron knows?

    S. Roche, perhaps?

    Bart's Hair Dresser?

    Spartacus Rex
    Oct 30, 2013 - 4:48am

    AHA Bron. Soooo....

    Re: “Working, on two deals that will hopefully open up new channels for gold and get more people buying.” & “Can't say as all client stuff with us is private. Basically just organisations larger than us who have a greater reach. One will go ahead and should launch early 2014, the other one early days.” Sooo, by connecting the Dots I see that the Dubai Gold & Commodities Exchange, where approx. one quarter of all the physical gold traded around the world already passes, is coincidentally “launching” a spot gold contract next year. (1st in Middle East) GOTCHA! But of course “all client stuff with us is private” ; )

    Bron SucheckiMotley Fool
    Oct 27, 2013 - 9:24pm

    COMEX kilo bars

    BTW, COMEX specs are a minimum of 99.5% whereas kilobars for the Asian market require 99.99%, although there is some demand for 99.5 in India. As it costs more to make 99.99 than 99.5, a bullion bank isn't going to put 99.99 bars into COMEX and may not be able to use 99.5 COMEX bars to meet Asian demand without re-refining.

    So we sort of have to separate kilobar markets. I would note however that if Asian demand is high and a bullion bank can get good premiums on 99.99 kilobars, they are going to ask refiners to turn all dore into 99.99 bar. So if we see 99.5 bars going into COMEX then it may be an indicator that Asian demand has eased.

    Motley Fool
    Oct 27, 2013 - 5:49am

    Bron

    Thanks. I didn't know COMEX allows kilo bars.

    Bron SucheckiRationalMind
    Oct 27, 2013 - 1:38am

    You are confusing recording

    You are confusing recording of weigh to 2 or 3 decimal with the precision of the casting. All kilo bars weigh exactly 1 kilo, ie 32.15075oz - the fabrication process is capable of exact weight casting. 400oz bars (and I believe 100oz silver COMEX ones) are odd weight, ie bars can be + or - of the weight within approved tolerances - it is done this way because it is cheaper than exact weight casting.

    So TF's entire post on this topic is wrong because he didn't bother to check that COMEX allows kilos bars and that every kilo bar is 1 kilo and recorded as 32.15oz, which multiplies out to the exact ounce figures.

    I would note that in the wholesale markets kilo bars are usually sold in 1 tonne lots, so it makes sense that movements occur in 1 tonne lots.

    RationalMind
    Oct 26, 2013 - 8:46pm

    @Bron

    Bron,

    Given your response to my posting, and therefore, agreement that Perth Mint (and other mints) can only fabricate bars to 2 to 3 decimal points, it does seem that Turd's posting on the exact tonnage being reported by JPM is highly suspect, is spot on. It doesn't matter that the COMEX specifications (that you provided earlier) requires exact weights, if the fabrication process (as posted by another Turdville member) is incapable of such.

    Elementary, my dear Watson?

    tmosleyHeirHelmut
    Oct 26, 2013 - 8:49am

    Breakdown of HeirHelmut's "argumentation"

    HH: How can any of you listen to Jim Willie!? He's a blatant liar! You guys are so stupid, do you do any fact checking??

    TFMR: When did he lie?

    HH: This one time, and I know because I did all this research that I can't prove that I actually did, and refuse to name any names or detail what I am talking about.

    TFMR: Well, you have just made this a case of your word against his. Why don't you post another "lie" since he is such a big liar?

    HH: YOU'RE SO CLOSE MINDED! WAAAAAAAAAAAAAAAH! You people never fact check except when I'm the one making wild accusations! WAAAAAAAAAHHH!

    Maybe you can do a little better than this? Some people are genuinely interested in the truth, you know.

    You get exactly one more chance before you go on my ignore list with the garbage and trolls. The fact that Turd let you in the Vault is the ONLY reason I have given you so many chances here.

    Visit the FAQ page to learn how to track your last read comment, add images, embed videos, tweets, and animated gifs, and more.

    Bron SucheckiRationalMind
    Oct 26, 2013 - 12:31am

    @RationalMind

    Yes, the rest of the gold market works to 3 decimal places. I really don't know why COMEX rounds down/up to only 2 decimals, I suppose they think it evens out in the long run.

    RationalMind
    Oct 25, 2013 - 11:02pm

    Perth Mint's silver bars are to 3 decimal points too

    Bron,

    As you know from the pdf file at below url, the silver bars are to 3 decimal points. https://www.perthmint.com.au/pool_allocated_bar_listing.aspx

    I couldn't find the pdf listing for gold bars from the Mint, but presumed they would also be to 3 decimal points.

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