The 10/1 Bank Participation Report

Wed, Oct 30, 2013 - 9:47am

After giving it some thought, I've decided to publicly release this post from yesterday. The information here would seem to be pretty important and I don't see many other "analysts" talking about it.

The latest BPR was released back on Friday. Though the information is old and stale, it still tells us quite a bit about where prices are likely headed in the short term.

Because of the U.S. government shutdown, the survey for the latest BPR was taken on Tuesday, October 1 but the data wasn't compiled and released until last Friday, the 25th. Yikes! Certainly a lot has changed in the intervening 24 days...however...the report is still instructive as to the positioning of the big U.S. banks, namely JPMorgan.

Recall that, since time immemorial, all of the banks have been NET SHORT Comex gold futures. While some of this is due to their hedge books for producers, the vast majority of these shorts are placed utilizing leased gold from the central banks, with the intention of suppressing and controlling price. This has gone on for decades and, if you don't believe this, then you obviously haven't read Ferdinand Lips' book:

Lately, though, something amazing has happened. While the non-U.S. banks surveyed for the BPR have remained NET SHORT, the U.S. banks have moved NET LONG. Several things to note before we go on:

  1. The report summarizes, without naming names, the positions of the 4 largest U.S. banks and the 20 largest non-U.S. banks.
  2. The Gorilla in the U.S. bank space is JPMorgan. They are joined at times by the likes of BoAML, Citi, MorganStanley and Goldman.
  3. The non-U.S. banks are firms such as Scotia, Barclays, HSBC, Deutsche et al.

Now, you also need some history. QE∞ was originally announced by The Bernank back in September of 2012. There had been a BPR survey taken earlier that month and it looked like this:


U.S. Banks 37,571 122,154 -84,583

Non U.S. Banks 10,710 64,144 -53,434

So, right before ∞ was announced, the entire global bullion banking cartel was NET SHORT 138,017 contracts of Comex gold. That's 13,801,700 paper ounces or 429 paper metric tonnes.

As you might expect, that announcement of QE∞ sparked quite a bit of interest in buying gold (real and paper). Over the next 90 days, The Cartel tried desperately to contain the rally and protect their shorts. However, by the time The Bernank confirmed QE∞ in December, it was clear that they were in a losing battle. Below is the BPR dated 12/4/12:


U.S. Banks 37,790 144,183 -106,393

Non U.S. Banks 35,326 80,033 -44,707

Though the non-U.S. banks had actually trimmed their NET position by tripling their GROSS longs, the U.S. banks were seen to double down, increasing their NET SHORT position by over 25% over just these three months. One week later, on 12/12/12, The Bernank confirmed that QE was indeed to infinity. Desperate, the banks knew they had to!

On December 12 of last year, gold closed at $1728. It then almost immediately began a counter-intuitive selloff that continued for nearly six months before bottoming at $1180 on June 28 of this year. Let's take a moment and see how the banks' positions have changed over that time period. Let's first look at the BPR from March 5, 2013 when price had "survived" a very nasty February raid but had already declined nearly $150 since December to rest at $1581.


U.S. Banks 40,685 86,924 -46,059

Non U.S. Banks 29,219 72,545 -43,326

Well, what do we have here? In just three months, the U.S. banks (again, mainly JPM) had managed to trim their NET SHORT position by nearly 60%! The non-U.S. banks apparently failed to get the memo. Notice that their NET position has barely budged.

As you most certainly know, the most brutal part of the scheme was enacted in April and the selling it engendered culminated with the final bottom on June 28. Another BPR was taken the next week and what do you suppose it revealed? The numbers are below. Again, this survey was taken on 7/2/13 with price at $1246, down 28% from the announcement of QE∞ six months earlier.


U.S. Banks 69,656 24,939 +44,717

Non U.S. Banks 34,904 58,656 -23,752

Holy Toledo!! Let's see if we've got this straight. On 12/4/12, one week before The Bernank confirms QE∞, the U.S. banks (namely JPM) are NET SHORT 106,393 Comex gold contracts. That's 331 metric tonnes of paper obligation. Just six months later, after a massive and counter-intuitive selloff that ripped over 30% out of price and "costing" investors worldwide BILLIONS of dollars, the U.S. banks are now NET LONG 44,717 contracts or 140 metric tonnes of paper gold. WOW! (Again note that the non-U.S. banks have apparently been cut out of the deal. Yes, they've trimmed their NET SHORT position by 50% but their still NET SHORT 23,752 contracts.)

On balance, price rallied through July but, by the time the next BPR survey was taken on August 6, the change was not that great. From 7/2 to 8/6, price only moved $36 higher, closing at $1282. On the August BPR, we saw that the U.S. banks utilized this time to increase their NET LONG position by another 30%.


U.S. Banks 90,949 31,476 +59,473

Non U.S. Banks 25,957 47,996 -22,039

Again, notice that the non-U.S. banks are still clueless. They just keep trudging along with their shorts. The U.S. banks however are now NET LONG 185 metric tonnes of paper gold. Now, from the initiation of QE∞, the U.S. banks have made a NET move of 516 metric tonnes. Simply incredible!

At this point, with price oversold and persistent negative GOFO indicating extreme physical tightness, gold was bound to rally and it did, moving higher through August and peaking at $1434 on August 28. The next BPR survey was taken on September 3 and what did it reveal?


U.S. Banks 69,510 24,604 +44,906

Non U.S. Banks 23,626 60,350 -36,724

Obviously, the non-U.S. banks are oblivious to what's going on. The U.S. banks (JPM) used the rally in August to ring the register on a portion of their NET LONG position. In order to help cap the rally, the non-U.S. banks were adding shorts all month, increasing their NET SHORT position by over 50%.

So this brings us to the latest BPR. Again, the survey was taken four weeks ago today, with price again at $1286. What does it reveal? Well, at least as of 10/1, the U.S. banks (JPM) were right back to where they were in August, prior to the rally.


U.S. Banks 80,735 22,638 +58,367

Non U.S. Banks 24,296 57,665 -33,369

A few other key points here:

  • Price was, of course, raided the first 10 days of October (Comex delivery month) in order to inspire liquidations (provide rhetorical cover) from the GLD. Price bottomed on the 15th at $1251 and closed that day at $1273.
  • No doubt this time was used to increase the NET LONG position of the U.S. banks even more.
  • Price has since rallied nearly $100 so it is likely that the current positions of the U.S. banks mirror the positions from the survey taken on 10/1.

THIS NEXT SECTION IS CRITICAL. Feel free to disregard it, argue with it...whatever...but this is what I think and this is how I decided that JPM has cornered Comex gold on the LONG side.

  • Note how the non-U.S. banks consistently maintain a ratio of about 1:2 gross long vs gross short. Certainly it varies month to month but, on balance, it's safe to summarize it as a policy of 1:2.
  • I think that the other U.S. banks (those NOT named JPMorgan) maintain a similar policy. Using this methodology and by allocating nearly all of the GROSS shorts to the other three U.S. banks, this supposes an "other three" U.S. banks GROSS long position of about 11,000 contracts.
  • This leaves the balance of the GROSS LONG position in JPM accounts.
  • Subtracting 11,000 or so from 80,735 and you get a JPM NET LONG position of 70,000 but, in reality, is likely anywhere from 65,000 to 75,000 contracts.

And now here's where it really gets fun...

The total open interest for Comex gold stands at 397,000 contracts, of which 227,000 (57%) resides in the front (delivery) month of December 2013. If I'm right and JPM is NET LONG about 70,000 Comex gold contracts, how many of those are Dec13s? 40,000? 50,000?? All of them??? And what's going to happen to this position as we approach First Notice Day and deliveries begin at the end of November? Will JPM simply roll the position into Feb14 and April14 or will they stand for delivery? And if they stand for delivery, how many contracts will they seek to have delivered?

Either way, as we've clearly established over the past few months, price is only raided during delivery months where JPM is issuing deliveries. In August, when JPM was taking delivery (stopping), price rallied. Since JPM is clearly NOT going to be issuing in December, should we expect a rally? ABSOLUTELY! This is why I've been telling you for weeks that price would bottom again in mid-October and then rally through the end of the year. This latest BPR, though dated and stale, nonetheless confirms this forecast.

Keep calm and stack on. The next two months are going to be very, very interesting.



10:00 am Wednesday UPDATE:

It dawned on me yesterday that we should also look at these numbers on a ratio basis and we discussed them in yesterday's podcast. For this updated post today, I thought I should include them here.

Note that the numbers above indicate a NET LONG position for the U.S. banks as of 10/1 that was equivalent to their net position back in August. However, numbers can be slightly deceiving when they stand alone. Because of the always-changing open interest, I've often found it helpful to look instead at the ratio of long:short. This gives me a better overall feel for position changes. In this case, we need to divide the GROSS LONG position by the GROSS SHORT position of each month in order to derive a NET LONG RATIO. So let's do just that and see what is revealed.

MAY: U.S. Banks still NET SHORT but the ratio had declined to just 1.28:1

JUNE: For the first time, the U.S. Banks are NET LONG with a ratio of 2.09:1

JULY: The NET LONG ratio has grown to 2.79:1

AUGUST: A little higher at 2.89:1

SEPTEMBER: A little lower at 2.82:1

OK, let's pause here for a moment. Go back and look at the NET POSITION CHANGES listed in the body of this post. Note that the July U.S. bank NET LONG POSITION was 44,867. In August, it rose to 59,473 but, in September, it fell back to July levels at 44,906. That's a pretty big swing of over 30% but note that the NET LONG RATIOS barely changed over that time period.

Now let's look at the October 1 numbers. If we divide the 80,735 GROSS LONG position by the 22,368 GROSS SHORT position, we get a U.S. Bank NET LONG RATIO of 3.61:1 and this is considerably more bullish than any of the summer months.

Perceived from this point of view, the October Bank Participation Report only serves to increase my optimism and bullishness. Prepare accordingly.


About the Author

turd [at] tfmetalsreport [dot] com ()


Oct 30, 2013 - 10:20am

Where is everyone this morning?

So I have decided to begin trading again--options on commodity futures--a totally manipulated market, but manipulations that are predictable to a higher degree than I am able to forecast using my own egregious charting skills. Just a small account that will keep me interested. Besides, I hesitate to put any fiat into real estate.

Souls like this might be a good time to add to the stack as well. I have been waiting for another pullback the past week, but seems that Turd thinks we may not see one in the next 30 days.

Doctor J
Oct 30, 2013 - 10:24am


There will always be "pullbacks". Currently, we're running in a pattern of 2 UP days followed by 1 down day. If you think I'm right about prices short-term, just BTFD.

p.s. I just checked and there are a total of 90 folks currently on the site. Don't worry, this is a public post. I'm sure we'll be overrun with trolls and naysayers any minute now...

Oct 30, 2013 - 10:28am

Money Managers view on gold

Just got this e-mail in from a PM money manager thought I would share

Price of Gold

What contributed to the correction?

  • Much of 2012 and 2013 witnessed significant headwinds for gold due to:
    • Growth in global liquidity declined
      • US Fed balance sheet flattening out – Markets discounted an end to Quantitative Easing
      • ECB balance sheet contracted (Draghi’s actions did not reflect promises)
      • China intervened less in FX markets – they let FX reserves continue to grow
    • The US dollar went up
      • As a consequence had a strong run, reflecting the lower gold price
      • Starting to see the early stages of a reversal
    • Investment demand weakened
      • Sell-off in ETFs in Q2 & Q3 2013

Global Liquidity

  • Money supply drives gold
    • More recently there is a disconnect between advances in global liquidity and the price of gold
    • Growth rate in FX reserves declined sharply in recent quarters
  • US Federal Reserve’s balance sheet flat lined in 2012…
    • This is why the market was stagnant with the gold price, but he does believe that the balance sheet will continue to expand
    • Remember that there has been a tripling of assets since the crisis
  • …with ECB’s rolling over

China Intervened Less in FX Markets àDip in FX reserves rise did not help gold

Real Interest Rates

  • Real interest rates below zero supportive, but are creeping upwards
  • Negative real rates are positive for gold, but in recent days has started to reverse – sees this going forward

The US Dollar

  • Rally of US dollar did not help gold prices
  • Seeing a renewed weakness of the US dollar…in Canada the CAD/Gold Price is more relevant and the weakness of the CAD has added to this gold price weakness for us

Investment Demand

  • Selling in ETF market was dramatic in Q2 2013
  • Selling off of gold ETFs has added additional pressure on the price of gold

Price of Gold

Some bullish factors supporting gold’s outlook

  • Global debt crisis has many years to run – monetary policy a cause for volatility
  • Certain central banks will continue buying gold
  • Gold is not expensive
  • Commodity price cycles typically run for years – what we are seeing is a god behavior for all commodities, as monetary assets and not so much as commodities
  • Global imbalances require devaluation of US dollar
  • Mine supply will stabilize and/or decline – not a significant contributor
  • Consumer demand will remain elevated in Asia

Global Debt Crisis àDeveloped countries likely to have high debt/GDP ratios for years to come

  • Greece, Italy, Spain are hot spots
  • Sees trouble in Greece in 2014 as they are “Technically bankrupt” – will have to extend a need for liquidity

Central Banks àBanks holding the largest FX reserves likely to seek Insurance

  • If the commodity is not held by a central bank, it does get bought by manufacturers, this is a fact he has identified for the commodity

Gold’s Relative Value

  • Oil to gold – 1970 average to date: 15.10, on a relative basis these two commodities correlate quite well in rising price markets, and if this range were to break down to a single digit range then significant cost pressures would become apparent in the industry
  • Copper to gold – 1970 average to date 337.26
  • Gold to silver – 1970 average to date 54.81 – this is more a barometer of supply than an indication of relative behavior, there are thresholds for the strength of the price of gold when this falls below 50 even euphoric) – currently 59:1

Precious Metals Sector

  • Margins still healthy for senior producers
  • Gold & cyanide: Input prices tracking gold
    • Cyanide prices do not trade on a daily basis lag gold prices) – but nevertheless there is a strong correlation, as this chemical is key to the production costs in mining – these profit margins do not get compressed/expand as quickly as investors think with these price movements
  • Capital expenditures in gold & dollars: Detour Lake Mine
    • Between 2009 to present: CAPEX has expanded
    • Construction in ounces of gold (CAPEX in Ounces) is able to be expressed relative to the price of gold

Our Two Precious Metals Funds

Cap weights and allocation:

  • Dynamic Strategic Gold Class: Bullion currently accounts for 56 of this fund
  • Dynamic Precious Metals Fund: 23 companies - High conviction and high concentration

Base Metals

  • International interest rate arbitrage swaps contributing to buoy metals prices
  • Copper inventory restocking in China
    • Production of copper semi-fabricated products up 4% versus August 2013 and up 20% for the January-September period
    • This is a key measure of end demand for copper in China, a country that accounts for 8.1 tonnes of 41% of world demand


P.S. 4th baby!!

Oct 30, 2013 - 10:32am
Mr. Fix
Oct 30, 2013 - 10:35am

Good luck with that Dr. Jerome,

I wish I had your confidence that the game could continue, in a predictable manner.

I'm just going to spend the next few days doing a long-overdue restoration project on my old Mustang, and bring it back to “everyday car status”.

The outcome is predictable, because I have a say in it.

The markets? Not so much.

Now, I better get out of the way of the onslaught of trolls, I would not want to get caught in the stampede

Have a nice day.

Oct 30, 2013 - 10:37am

This is terrific!

Everyone should take the time to scroll through:

Oct 30, 2013 - 10:48am



Oct 30, 2013 - 10:52am

good stuff from Stu

  1. There are numerous measurements of the supply of money, and the Federal Reserve Bank of St. Louis has charts for most of them.
  2. These charts should be of particular interest to gold price enthusiasts, because they can indicate whether deflation or inflation is the major theme in play.
  3. Please click here now. This “MZM” (Money Zero Maturity) chart is especially interesting, because it excludes large time deposits.
  4. MZM is a comprehensive money supply measure designed to represent money that is immediately available for spending by consumers, and it has been declining since gold peaked in 1980.
  5. Please note the red bullish wedge pattern that I’ve highlighted. I believe it is hinting that three decades of “deflationary rule” may be coming to an end.
  6. Even with that wedge in place, it’s likely going to take some time for the transition from deflation to inflation to occur, mainly because so mainly OTC derivative contracts were marked to “model” during the 2008 – 2009 economic collapse.
  7. It’s almost impossible for regular investors to get much accurate information about the quantity of OTC derivatives debt that still exists, and how much has been marked to market, by the Fed and the large commercial banks.
  8. In the meantime, it’s very important for gold investors to focus on key intermediate term highs on the gold chart. Gold may or may not have bottomed in the $1180 area, but until it rises above some of these highs, there is no real uptrend in play.
  9. The late August highs in the $1430 area must be exceeded before the current price action can be called a real uptrend.
  10. Please click here now. You are viewing the daily gold chart. Note the fan lines marked F1, F2, and F3.

Lots of trading charts!

Oct 30, 2013 - 11:02am

Re:This is terrific

Holy cow Turd, that is an outstanding article. The amount of info is breathtaking. I have bookmarked the page and sent the link to several in my contact list.

The link to the November 4th 1943 memo is really eye opening. I have sent that to a couple of friends who are world war 2 buffs.

It is a keeper


Oct 30, 2013 - 11:14am

You're right

The 1943 stuff is remarkable. For everyone, read here:

Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

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Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Key Economic Events Week of 10/7

10/8 8:30 ET Producer Price Index
10/9 10:00 ET Job Openings
10/9 10:00 ET Wholesale Inventories
10/9 2:00 ET September FOMC minutes
10/10 8:30 ET Consumer Price Index
10/11 10:00 ET Consumer Sentiment

Key Economic Events Week of 9/30

9/30 9:45 ET Chicago PMI
10/1 9:45 ET Markit Manu PMI
10/1 10:00 ET ISM Manu PMI
10/1 10:00 ET Construction Spending
10/2 China Golden Week Begins
10/2 8:15 ET ADP jobs report
10/3 9:45 ET Markit Service PMI
10/3 10:00 ET ISM Service PMI
10/3 10:00 ET Factory Orders
10/4 8:30 ET BLSBS
10/4 8:30 ET US Trade Deficit

Key Economic Events Week of 9/23

9/23 9:45 ET Markit flash PMIs
9/24 10:00 ET Consumer Confidence
9/26 8:30 ET Q2 GDP third guess
9/27 8:30 ET Durable Goods
9/27 8:30 ET Pers Inc and Cons Spend
9/27 8:30 ET Core Inflation

Key Economic Events Week of 9/16

9/17 9:15 ET Cap Ute & Ind Prod
9/18 8:30 ET Housing Starts & Bldg Perm.
9/18 2:00 ET Fedlines
9/18 2:30 ET CGP presser
9/19 8:30 ET Philly Fed
9/19 10:00 ET Existing Home Sales

Key Economic Events Week of 9/9

9/10 10:00 ET Job openings
9/11 8:30 ET PPI
9/11 10:00 ET Wholesale Inv.
9/12 8:30 ET CPI
9/13 8:30 ET Retail Sales
9/13 10:00 ET Consumer Sentiment
9/13 10:00 ET Business Inv.

Key Economic Events Week of 9/3

9/3 9:45 ET Markit Manu PMI
9/3 10:00 ET ISM Manu PMI
9/3 10:00 ET Construction Spending
9/4 8:30 ET Foreign Trade Deficit
9/5 9:45 ET Markit Svc PMI
9/5 10:00 ET ISM Svc PMI
9/5 10:00 ET Factory Orders
9/6 8:30 ET BLSBS

Key Economic Events Week of 8/26

8/26 8:30 ET Durable Goods
8/27 9:00 ET Case-Shiller Home Price Idx
8/27 10:00 ET Consumer Confidence
8/29 8:30 ET Q2 GDP 2nd guess
8/29 8:30 ET Advance Trade in Goods
8/30 8:30 ET Pers. Inc. and Cons. Spend.
8/30 8:30 ET Core Inflation
8/30 9:45 ET Chicago PMI

Key Economic Events Week of 8/19

8/21 10:00 ET Existing home sales
8/21 2:00 ET July FOMC minutes
8/22 9:45 ET Markit Manu and Svc PMIs
8/22 Jackson Holedown begins
8/23 10:00 ET Chief Goon Powell speaks

Key Economic Events Week of 8/12

8/13 8:30 ET Consumer Price Index
8/14 8:30 ET Retail Sales
8/14 8:30 ET Productivity & Labor Costs
8/14 8:30 ET Philly Fed
8/14 9:15 ET Ind Prod and Cap Ute
8/14 10:00 ET Business Inventories
8/15 8:30 ET Housing Starts & Bldg Permits

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