The November Bank Participation Report

Mon, Nov 18, 2013 - 10:33am

I had planned to release publicly this column from last week. Since we are already seeing an increase in volatility this morning, I figured there was no time like the present!

After a couple of days of delay, your friends at the CFTC have released the latest Bank Participation Report for November and there are some very interesting new trends.

First, a refresher. The Bank Participation Report comes out just once per month with data usually obtained from a survey taken on the first Tuesday of the month. The totals are then aggregated into categories as the last thing the CFTC and The Cartel wants is anything close to full disclosure and transparency.

There are summary positions reported for the four largest U.S. banks in each currency, index or commodity and obviously which bank is involved varies from issue to issue. There is also a summary issued for the twenty largest non-U.S. banks and you can find the entire report here:

As it pertains to the metals, the "U.S bank" total will always include JP Morgan (likely 70-80% of the entire total) and will also include the positions of "banks" such as Goldman, Morgan Stanley, Citi, BofAML et al. The "non-U.S. banks" included in the report are likely Scotia, HSBC, Deutsche Bank, UBS and the rest of the usual suspects.

OK, below is the raw data over the past five surveys since the price bottom on June 28. Look it over and draw your own conclusions and I will provide my own thoughts next. Keep in mind that both the U.S. and non-U.S. banks have been NET SHORT since time immemorial. The U.S. banks only became NET LONG as of the BPR dated 6/4/13.


7/2/13 U.S. Bank 69,656 24,939 44,717 +2.79:1

$1246 non-U.S. Bank 34,904 58,656 23,752 -1.68:1


8/6/13 U.S. Bank 90,949 31,476 59,473 +2.89:1

$1282 non-U.S. Bank 25,957 47,996 22,039 -1.85:1


9/3/13 U.S. Bank 69,510 24,604 44,906 +2.82:1

$1412 non-U.S. Bank 23,626 60,350 36,724 -2.55:1


10/1/13 U.S. Bank 80,375 22,368 58,007 +3.59:1

$1286 non-U.S. Bank 24,296 57,665 33,369 -2.37:1


11/5/13 U.S. Bank 75,802 26,068 49,734 +2.91:1

$1308 non-U.S. Bank 19,006 58,486 39,480 -3.08:1

Jeezo-pete...where do we start? How about these four points?

  • Note that the NET U.S. Bank position is slightly more positive (long) than it was at the price bottom.
  • The non-U.S. Bank GROSS long position has been cut in half since the bottom in June. If you're wondering just whom has been selling to keep a lid on's them.
  • As of last Tuesday, the size of JPM's NET LONG position is likely about the same as it was on each of the previous reports.
  • On a NET and ratio basis, the non-U.S. Banks have doubled their "shortedness" since the bottom in June. Of course, this is just "hedging for clients"....rrrrrriiiiggghhhttt....note that they've done this not by adding shorts but by dumping longs....after price had already fallen by 30%.

As I've often mentioned, we also need to look at the total Comex gold open interest and, as of 11/5/13, it was 386,796. Also on that day, the total open interest of the Dec13 contract alone was 198,626. So, of the total open interest, more than half (51.4%) was in the front-month Dec13. As stated repeatedly, I believe that JPM is the owner of almost the entire GROSS long U.S. Bank position, making their NET long something like 75,000 contracts. If they have spread that across the entire gold complex in a distribution that simply mirrors the overall open interest, JPM would be NET LONG about 40,000 Dec13 contracts, at least as of Tuesday the 5th.


Does JPM stand for delivery in December? Do they stand for 10,000 or so but roll the rest into Feb14 and Apr14? Do they roll the entire 40,000-contract Dec13 position?

And why would I expect them to roll and not just simply close the position? Well...they've maintained this massive NET LONG position now for over five months...why would they change and switch now, at this moment? No, there is every reason to suspect that JPM is NET LONG, waiting for some major event in the gold market. Some have suggested that the Comex position is just a hedge of a NET SHORT position held elsewhere in the OTC market. Maybe. But why the obvious and visible switch of Comex the end of the historic, contrived and counter-intuitive move down from $1800 to $1200?

No, I'm not buying it. JPM has something up their collective sleeve. Their intransigence regarding their position has shifted the capping burden entirely onto the non-U.S. bank category. Expect this battle to continue.

In the days since the survey was taken, Dec13 open interest has fallen 33,000+ contracts to 165,035 as contracts are closed ahead of expiration. Accordingly, open interest in the Feb14 has grown 43,000+ from 66,227 to 109,102. As we've been documenting and as last week's CoT confirms, this is primarily new Spec shorting as indicated by the falling price. So, we can conclude that, as of this moment, JPM is still NET LONG 70,000+ contracts and maybe still 35,000 or more in Dec13. Therefore, RIGHT NOW, you need to understand something very, very important:

First Notice Day for the Dec13 is Friday, November 29. That's just one week from Friday! Expect extreme volatility in the days ahead. Though JPM is NET LONG and may stand for delivery in December of a significant number of contracts, enough that they could break The Comex if they so desire, they might not. They may simply choose to stand pat and roll their position into 2014. If/when they do so, there is no easy way for them to accomplish this feat without "disrupting the market" AND, given their track record of price manipulation, we must expect them to "leg out". What does that mean? Instead of simultaneously selling a Dec13 and buying a Feb14 for minimal to zero price impact, JPM may choose to dump 5,000 or 10,000 at a time. This would set off an enormous waterfall cascade of follow-on Spec selling, into which JPM buys their 5,000 to 10,000 Febs and Aprs at an enormous discount to where price was just minutes earlier. <11/18 edit: Today's $8 dump early in Comex trading was likely JPM "testing the waters">

You must understand that ANYTHING is possible over these next few weeks. The price of gold could skyrocket as JPM stands for an enormous amount of December deliveries. The price could also plummet to a retest of the $1180 low as JPM legs out and rolls their position. Again, ANYTHING IS POSSIBLE!

The best strategy for you is preparation and situational awareness. Understand and comprehend what is happening when you see this volatility. Recognize it for what it is and do what JPM is doing, namely BTFD, and get ready for a wild and wooly 2014.


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