By The Short Hairs

Thu, Jan 16, 2014 - 11:52am

Just two weeks from today, The Comex will begin the process of delivering February2014 contracts. More than ever before, JPMorgan has The Comex "by the short hairs". Will they let go?

I've been telling you for some time that the biggest factor for the paper price of gold in 2014 is JPM's NET LONG market corner in Comex gold futures. From a NET SHORT position in the fall of 2012 that grew as high as 75,000 contracts, JPMorgan utilized the price weakness of 2013 to build a NET LONG position of similar size by last summer. This position has since warbled between 55,000 and 80,000 contracts as price has fluctuated and bounced along The Bottom.

Last Friday, we received another Bank Participation Report from the CFTC. On it, there were several changes of note...most notably the non-U.S. bank position that is also now nearly NET LONG. This latest report also gave us an updated peek under the hood at JPM's position. By no means is this an exact science so I've always pegged JPM's NET LONG position to be about 90% or so of the U.S. Bank GROSS LONG position on the report. Using this "formula", we can calculate JPM's NET LONG position to be around 55,000 contracts as of last Tuesday. For what it's worth, this is about the same level at which Uncle Ted has it pegged, too.

Why has it declined? Primarily it was the expiration of the Dec13 futures. Recall that initially, over 10,000 stood on First Notice Day. Since the JPM House Account ultimately stopped over 96% of all Dec13 deliveries (6254 of 6493), I think it's safe to conclude that JPM also held the vast majority of the other 3,664 contracts that were NOT delivered, instead being sold and closed via Comex trading. So, in the end, about 9,500 of the decrease in JPM's NET LONG position came from the exercise and/or closing of December positions.

So now JPM has a NET LONG position of 55,000 contracts, likely spread across the board as such:

  • 20,000-25,000 in the front-month of Feb14
  • 10,000-15,000 in April14
  • 5,000-15,000 in June14
  • 0-5,000 in August14
  • 0-5,000 in Dec14

And the questions you need be be considering are:

  1. HOW many will they use to stand for delivery in February?
  2. WHY are they so furiously taking delivery?
  3. WHAT are they trying to accomplish?
  4. Perhaps, most importantly, do they have any other, more sinister motives?
  5. And, finally, how many deliveries can The Comex withstand without "breaking"?

Let's start with #1.

As mentioned above, there were 10,157 Dec13 contracts standing at First Notice Day. As of November 13, 2013 (equal in trading days to this past Tuesday) there was a total Dec13 open interest of 171,848 which, as a percentage of total gold open interest was 42.54%. Last January, on an equivalent date, the Feb13 open interest was at 195,146, the percentage in Feb13 was 44.26% and, ultimately, a whopping 13,070 stood on First Notice Day. As of last Tuesday, there were 165,856 Feb14 contracts still open and this represented 39.93% of the total open interest. So, at this point in January, is it safe to conclude that at least 8,000 will stand for February delivery? Yes.

Moving on to #2.

Why? That's a very good question and it ties in with #4. Perhaps NOW would be an excellent time to go back and read this: During the price collapse last year, as JPM was rapidly converting their cornering NET SHORT position into a cornering NET LONG position, JPM got hooked for quite a bit of gold. As the non-U.S. banks, primarily HSBC took massive deliveries, JPM was stuck providing the metal. In fact, in just the first six months of 2013, the JPM House and Customer accounts delivered an amazing 31,939 contracts! That's 3,193,900 troy ounces. Not coincidentally, at the same time, registered stocks in the Comex vaults began to decline dramatically, from 3,000,000 ounces in January down to about 700,000 by the end of June.

Could it be stated that JPM delivered and then the other banks took it and left the building? Yes. Could it be concluded that JPM is now stopping 96% of deliveries because they want "their" gold back? Yes. Did they take (stop) just enough in December to avoid breaking The Comex? Yes. (They could have taken A LOT more and even cash-settled 30%+ of what they had on First Notice Day.) Will they likely pull the same move in February? Yes.

Now #3.

And this is where it begins to get real interesting. What do we KNOW about JPMorgan?

  1. This NET LONG position is real, not imagined.
  2. They "lost" A LOT of gold in the first six months of 2013.
  3. They're in deep doo-doo with the U.S. government for all kinds of lawlessness, ranging from mortgage fraud to market manipulation.
  4. The Dodd-Frank Law with the coming CFTC position limits, JPM's internal business restructurings and The Fed's latest actions all hint at MAJOR changes coming to a paper metal market near you.

In the end, I think JPMorgan is attempting to "get back" the gold that it "lost" in 2013 before they and the other banks may be forced to curtail their trading activities in the months and years ahead. The question for 2014 is: Will the other bullion banks play ball?

But why would they? If you, as head of HSBC, know that gold is going higher AND you know that supplies are tight AND you know that Chinese demand continues unabated, why on earth would you be short on The Comex and let JPM stand and demand delivery from you? Wouldn't you, instead, be moving to reduce and eliminate your NET SHORT position on The Comex? With no short position, JPM would have to get "their" gold from someone else. And what did I mention earlier about the latest non-U.S. bank position? Oh's down to just 6,364 contracts NET SHORT. As recently as two months ago, it was 39,480 contracts NET SHORT. Do you think these guys have wised up to JPM's plan?

So that leads us to #4.

IF JPM wants "their" gold back and IF the CFTC and Fed wants them out of paper metal and IF the other banks are unwilling to play along and provide the gold...what is JPMorgan going to do?

Last fall, I speculated that JPM could, ultimately, break The Comex on purpose....just like the did BearStearns. Want to grow your company and increase its TBTFness? Grab a rival by the short hairs and don't let go. Call their note and force them into bankruptcy. Then, ride in as a White Knight and save the day by buying them on the cheap. In a terrific piece of investigative reporting, ZeroHedge uncovered this exact behavior in the demise of Lehman Brothers, too.

With this as a model, could JPM be scheming to break The Comex if they don't "get their gold back"? I have no idea BUT they certainly could! Again, the CFTC has allowed JPM to build a NET LONG position of over 50,000 contracts, at least 20,000 of which is in the front-month Feb14. JPM already knows that the CFTC is powerless to stop them as, back in December, they stopped 6,254 contracts IN CLEAR VIOLATION of the current front-month position limits. They might stand for 20,000+ in February. They might stand for 30,000 in April. The point is: Since they have a cornering position, they could stand and break The Comex at any time. Just as in the case of Bear Stearns, JPM could then just ride in and buy out a desperate CME Group.

Again, is this likely? No. Is it possible? Absolutely!

Finally, #5.

Much of this depends upon the willingness of banks such as HSBC, Scotia, Barclays, DeutscheBank et al to play along, stay short and provide the gold to satisfy JPM's delivery demands. Take a look at this chart (courtesy of Jesse), does it look to you like they're playing ball?

And notice these Gold Stocks changes. The oldest daily report I can find on my hard drive is the one from 9/30/13. Note the reported positions of each depository, keeping in mind that "this information is taken from sources believed to be reliable..."

Now look at the same report as of yesterday:

Besides the oft-noted continued reduction of total registered, note the rather dramatic change in the size of JPM's eligible account.


And now, with just 280,000 ounces of registered gold (if you exclude JPM's), The Comex only has enough registered gold to physically settle 2,800 contracts in February. Of course, eligible gold can always be reclassified into registered in order to meet settlement demand...BUT...will it? Probably...but we'll see.

Again, JPM will likely stand for just enough gold that The Comex will be able to continue on toward April. The purpose of this post is NOT to make you think that The Comex's demise is imminent. What you do need to be aware of though is that, by virtue of their massive and cornering NET LONG position, JPM has The Comex "by the short hairs" and they can break it anytime they want. Just another reason that 2014 is going to be a very interesting year.


About the Author

tfmetalsreport [at] gmail [dot] com ()


Jan 17, 2014 - 4:49am

WGC is not valid - it lies....

China likely has between 4,500 to 7,000 tons of Gold. Maybe more....

The World Gold Council , says Sprott and many others, is a fraud!

U think China would relax when playing against foes like the UK and USA. PC Roberts states that everything the US gov't says is a lie! He was Assit Treasury Sec under Reagan!

Shake hands with yanks and you will be one-handed, that is how degraded the opinion of the world is re US.

The Chinese have imported virtually the whole world's supply this year alone....think the PBOC only got a small part of it, when it is the gov't that is desperate to free itself from the US Fiat Prison asap? Not likely.

Jan 17, 2014 - 1:20am

JPM's future plans...

Second guessing what JPM will do with it's gold holdings is difficult when it's dual mandate is:

  • Making obscene profits with total disrespect for laws and regulators.
  • Perpetuating the ponzi scheme so the elite 1% can continue to screw us over.

Which of these two motives will take precedence? Of course if they can satisfy both then double bonuses all round...

Regarding whether they will break the Comex I think we have a couple of clues in these articles:

One would imagine more foreign banks will soon be granted Chinese licenses and price realization will increasingly occur in China eventually making the Comex redundant.

Against this backdrop JPM's plans must be to grab as much cheap physical as possible from the Comex while they can still illegally suppress the price.

Once the Comex is gone they have no way to implement the price suppression scheme for their criminal pals at the Fed, dollar hegemony will enter it's final death throes and the price of gold will rise exponentially.

Of course they will make a fat profit from their gold holdings and will no doubt have a devious plan with the Chinese to maintain control by the 1%.

Sounds like double bonuses all round...

Fred Hayek
Jan 17, 2014 - 12:32am

@bylthesshrink . . . BINGO!

It's just too fricking much to believe that we find out that Germany only got a fraction of the fraction of a fraction of its gold back that it was supposed to get.

And now there's an actual investigation of PM price manipulation coming from Germany. Makes perfect sense is multiple ways. If they're not gonna give you your property back where's the downside for you in making noise about what crooks they are.

I'd love for the germans to casually reveal the epic malfeasance and corruption at the comex. Then let's see what good cop Chilton has to say. Actually, I'd bet that he'd never be seen in public as the damning contrast to him would be too great.

Jan 16, 2014 - 11:53pm
Jan 16, 2014 - 7:41pm

One other theory on the Bloomberg article

Pure speculation on my part, but strangely enough CL's excellent article AND Barry Ritholtz's personal reply to my last post got me thinking along these lines. One of the things he said was "who cares that China is expanding their gold reserves, everyone knows that". And I thought "Really? Where has Koos Jansen's research ever appeared in the MSM so that it is now common knowledge?" And it occurred to me- this is how you play the PR game against gold- refuse to report the facts, then pretend that these facts are old news and already priced in!

A while back I wrote a post called China's golden hammer. In it, I speculated on the possible ramifications of China revealing the gold hoard that WE know they have, but has yet to be talked about in the MSM. Short version is, it would be a PR disaster for the dollar.

Well what if you were the dollar-propping PTB, how would you blunt the effect of such an announcement, how would you steal its thunder? You would start by dribbling larger tonnage figures into the media (in reports just like this one, actually), starting with 2,000 or 2500 tons. Nothing to cause a stir. Then a bit later you can release a 3,500 ton figure, And so on... So that when the big announcement comes, the media can say "Oh, big deal- So they have a little more than was known, who cares? The previously reported figure 4,500 and they have six. So what?"

Jan 16, 2014 - 6:56pm

China gold reserves

Seems I read in one of Koos Jansens reports that China updated their gold reserves reports every six years. the last one in 2009, so next one in 2015 perhaps.

I be more inclined to believe Koos than Scrap Monster.

why do I even botherTF
Jan 16, 2014 - 6:40pm

Turd - Harvey's analysis

The text editor is still playing up, but 2 final points to note - the definition of 'Registered' (as simply Eligible-with-a-Warrant-attached) is in NYMEX Rulebook Chapter 7 §703 (10)


the Delivery Month contract is tradeable right up to 3 days before the end of the month (if you can find someone to sell you one to cover your short position)

Back in the day, my desk were inherently long deliverable bonds, and made consistent and repeated profits during contract rolls by playing the "cash & carry" arb - not just with the CTD, but with everything we held in our very considerable inventory (this was a MAJOR German Bank, representing literally hundreds of local savings banks).

Basically, you can set up a spreadsheet listing everything you currently have in physical inventory, and if the price is high enough, you sell the Delivery month contract to the squeezed short guy, stop the delivery from inventory, and simultaneously buy the Front month contract in order to stand and get your bonds back later (German Bund contracts were quarterly rather than monthly)

This is no different to repo-ing the Bonds out for 90 days, and I am sure that tgere are loads of OTC lease transactions going on inside the Eligible inventory to smooth out delivery stresses. The guys who are Long the physical don't need to sell it - they just lend it out for a month (at an exorbitant forward rate). Everybody's happy (especially if you are the guy leasing out metal to some poor sap so he can stop your Long position and deliver it right back to you. Fish in a Barrel)

Nick Elwaywhy do I even bother
Jan 16, 2014 - 6:13pm

Hate Mail for Salvation on behalf of Emperor Harvey

I'm unable to summon the vitriol for a fine hate mail. Sorry

When The Emperor has no clothes you are obligated to point it out.

When Emperor Norton has no clothes I'm reluctant to call attention to it. I think of Harvey Organ as a goldbug's Emperor Norton. I suppose newbies should get the warning and I admit it took me a while to understand that Harvey is a bit whacked, always has been. Everything you say is correct.

Daystar's forum "Harvey Organ should be an interesting..."

is a must-read for me. I read the news Harvey selected and Daystar's commentary and the Baltic Dry Index at the bottom.

When Emperor Harvey has no clothes I just want to get him a blanket.

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why do I even bother
Jan 16, 2014 - 6:03pm

No flame necessary

You are absolutely right.

The other mistake Harvey makes is when he claims that the difference between the FirstNoticeDay number and the final settlement number is an amount of contracts still needing/waiting to be delivered. The spot/delivery contract still trades during the process but at 100% margin. This is how 10,000+ stood in December yet the total delivery volume was 6400+. Some longs, instead of taking delivery, simply sell at the market. The short takes the other side of this trade, which closes the position and eliminates the need to deliver.

A glaring example of this was the Dec13 copper, which saw 5,000+ stand but only 500+ deliveries. Why? The other 4500 were enticed to sell as price rose through the month.

why do I even botherunwired
Jan 16, 2014 - 6:02pm


From Harvey, 15th Jan 14 :

" i) Out of Brinks dealer: 89,756.78 oz (and this found its way to JPMorgan customer account and thus a settlement)total dealer withdrawal: 89,756.78 oz (2.79 tonnes) .......

Brinks dealer account which did have the lions share of the dealer gold saw its inventory level fall tonight to only 80,138.17 oz or 2.492 tonnes. A few months ago they had over 13 tonnes of gold at its registered or dealer account......

As you will see below we have only 8.881 tonnes in the registered or for sale category for the big 3 (JPMorgan, HSBC,Scotia) and 11.373 tonnes if you include Brinks.(If you include the tiny Manfra, we end up with a total dealer gold of only 11.512 tonnes). We have witnessed little gold enter the dealer except small deposits from Brinks "

Brinks is not involved in proprietary ("own account") trading in PM, or in executing Client orders

They are an approved Depository and a Custodian but they are not even a COMEX Clearing Member

As such, Brinks has neither issued (stood) nor stopped any COMEX deliveries in either December or January Gold Futures - They are a custodian, not a Dealer (of any sort) and movements into and out of their warehouse is solely as a consequence of Customer activity

To refer to the Brinks Eligible inventory as 'Dealer account' or 'For Sale' (as the otherwise brilliant Harvey does) is therefore fundamentally wrong. The only difference between Brinks' - and indeed anyone else's - Eligible and Registered inventories is that Registered is already 'ear-marked' for someone else - a (unique) Warrant has been issued in respect of those specific bars (specifically §.705) and they are no longer owned by Brinks' Customers

There is a trap for the unwary here: the information required to understand the settlement dynamics of COMEX supply and demand is simply not publicly available, and conflating Inventory with Ownership is a dangerously misleading simplification.

In addition, remember that the daily Inventory Reports are recorded on a NET (i.e. Aggregated) basis, such that, within any cell in the report, if one market participant delivers and another receives, the report will record a zero value

OK, flame away, send me the Hate Mail, but Harvey is fundamentally wrong in the way he approaches his analysis of the daily Inventory Report, and whilst I find his work immensely impressive and meticulously diligent, the bigger-picture conclusions he draws are based on a fundamental misunderstanding of the way COMEX works.

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