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

turd [at] tfmetalsreport [dot] com ()


Jan 16, 2014 - 11:54am
Jan 16, 2014 - 11:58am


The coveted thurd

Third Eye Blind - Forget Myself
Jan 16, 2014 - 12:06pm

First no Fourth

I need to get a life. Thanks Turd - I hope you are right. Stopped to read before I posted and lost the coveted 1st.

Jan 16, 2014 - 12:10pm


I'll gladly take a fifth.

Jan 16, 2014 - 12:11pm

I plead da fif


Edit: too slow u lose.........;(

Jan 16, 2014 - 12:14pm

My 1st?

No way Ag, you screwed up my Hat Tip Call. Looking for Ag to globex close 20.20+, for 3 days closing such above 20.20, FOR ROCK AND ROLL FRIDAY. :o (and just bury, once and for all, 19.69 Ag)

Bryan Adams - Summer of 69

Well I'll be 2nd. I swore no one was there!!! Someone rigging the top tenner?

Marvin Gaye - I'll Be Doggone (Vinyl)
Jan 16, 2014 - 12:15pm

Its a great story Turd but so far its just been more of the same

From the Long side, sell offs to smash the metals and miners. Approaching 7 months of the story still hoping for a happy ending but no matter how convincing until they run out of metal its just more of the same. So in the end (IMO)running out of physical metal is ALL that materially matters. The rest is just BAU and in the end the sociopaths mainly win

why do I even bother
Jan 16, 2014 - 12:37pm

Turd, I respect you deeply but. ....

the Registered inventory is a red herring, and has nothing to do with anyone's ability to settle upon delivery

a. that Gold already belongs to someone else who holds its Warrant - it is already post-settled metal, and is no more and no less available for subsequent onward delivery than the (qualitatively identical) Eligible stocks

b. it is entirely possible to settle from Eligible > Eligible without a Warrant ever being attached (in which case the metal never becomes Registered)

c. It is entirely possible - and entirely invisible in the COMEX inventory reports - for JP Morgan to effect delivery settlements within its own Eligible inventory, and where a Customer doesn't have sufficient metal in inventory to transfer, for JP Morgan to lease them some until a forward date. This is entirely legal, and totally unseen


Jan 16, 2014 - 12:46pm


what has not been mentioned do not think-is that for a hushed up prioce somebody can be persuaded to loosen up their holdings. ie what if I had inventory in size and I get a call from my broker who is awayre that I have physical stored someplace safe--and said they would give me 1400 an ounces for gold to be delivered tomorrow-I'd do it in a heartbeat knowing what I have can be easily replaced at under 1300 all in.

but the offer is right at that moment cause someday soon this whol ething wil explode and it will during a default like I explain.

Of course for my gold holdings I am not even an ant. So the conundrum is they need players who have chunks in quantity. And those heavyweights can play teh game well too.

Anybody hearing of london shortages of good delivery bars?

Jan 16, 2014 - 12:58pm

Today's Webinar with Bill Holter

I wonder how many attendees for today's meeting didn't see the dialog box because I believe the panel "auto-hides" by default.

Here's what the dialog panel looks like during autohide - note orange arrow on the upper left box.

If you click on the arrow, it will TEMPORARILY expand.

You can disable the autohide feature under the "view" tab and deselect autohide.

why do I even bother
Jan 16, 2014 - 12:59pm

Yes, thank you

But I'm attempting to make a larger point...

What happens IF the other banks don't "play ball". The non-U.S. bank position is already down to just 6,000 net short. IF JPM wants delivery and the other banks aren't short, from where will the gold come? Maybe even the eligible isn't available.

Jan 16, 2014 - 1:00pm

Thank you

I'll be sure to remind everyone of that next week.

Jan 16, 2014 - 1:05pm

$20.20 cap

Even though the 50-day MA in March silver is now down to $20.10, you can clearly see that the $20.20 capping regime is back in place.

kylosabe TF
Jan 16, 2014 - 1:21pm

Per Turd...

Per Turd: "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."

But the Comex has enough eligible gold (if you exclude JPM's) to settle a little over 60,000 contracts.

Jan 16, 2014 - 1:31pm


Again...the question is: Will the other banks play ball and provide the gold should JPM choose to stand for the entire 50,000+ position over the coming months?

Maybe I need to go back and re-read my own post. Yes, I was in a hurry because A2A was about to start but I thought this was all pretty clear.

Of course eligible can be used. It can be reclassified and it can be transferred. That's not the point. The question is: WILL IT? WILL THE OTHER BANKS PLAY ALONG AND GIVE JPM THEIR GOLD BACK AND, IF THEY DON'T, WHAT WILL JPM DO NEXT? (not shouting, just using all caps for emphasis)

why do I even bother TF
Jan 16, 2014 - 1:44pm

The text editor is totally banjoed

i have given up trying to complete / edit my earlier Comment but, basically -

Last month we saw someone ship in (a net) 6 x 2 tons of Gold from outside the Exchange into JP Morgan's Eligible inventory. That metal could have been used to settle against positions standing which were also inside JP Morgan's Eligible inventory (simple transfer of legal ownership between participants), it could have been leased to another participant inside JP Morgan's Eligible inventory, or it could have been delivered to JP Morgan itself as part of the delivery process

Settlement involves transfers of ownership, not inventory, and that Gold does not need to come from Registered inventory - last month we saw Eligible » Eligible delivery, Off-Exchange » Eligible delivery, Warrants being broken to achieve Registered » Eligible delivery, but what we have absolutely no way of seeing is the big Mac Daddy : transfers of ownership within JP Morgan's Eligible inventory

I have it confirmed by the CME - Registered Inventory is NOT synonymous with Dealer own-account holdings and there is no doubt whatsoever that JP Morgan is itself also an active participant in the JP Morgan Eligible category. It is not just Customer Gold.

The information available to us is partial; Open Interest / Eligible is an interesting metric, but as Turd has shown, even if 10,000 contracts stand at the start of a delivery cycle, 30% of them may be cash settled, and the remaining 70% can easily be settled by bringing in (leased?) Gold from somewhere outside the Exchange. We simply have no idea what is going on - don't kid yourself (and don't fall for the false notion that Registered inventory is tge only source of deliverable metal)

kylosabe why do I even bother
Jan 16, 2014 - 1:55pm


"We simply have no idea what is going on - don't kid yourself (and don't fall for the false notion that Registered inventory is the only source of deliverable metal)"

Clarki Stomias
Jan 16, 2014 - 1:56pm

Best Buy just had a 31% "Slump"

This belongs with Pining's MSM post, but people stop reading the older ones after a while. So I just wanted to point out the discrepancies in equities vs. gold word choice using the recently cited Barry Ritzholtz' article as an example. In it, Barry stated:

"If a 20 percent drop is described as a bear market, and a 30 percent fall is called a crash -- what do we call gold’s almost 40 percent plummet?"

Good question, Mr. Ritzholtz. And fair enough. By that logic, I suppose today's Best Buy drop of 31% (in ONE day, mind you. Not over a year.) should be classified as a crash.

Let's see what the MSM calls it.

On the main MarketWatch page it says, "Best Buy: Sales drop a 'speed bump'". Oh. Okay. Just a speed bump. When you click into the article they do use the word "dive" in the header, but it is couched by the "speed bump" terminology. And the only other terminology that refers to the drop is "slump".

Terminology double standard? That's just a conspiracy...

To Barry's credit, he did respond to Pining/TFMR. But to maintain that there isn't an intentional MSM bias is just false. Barry even admitted Bloomberg editors made him change the original title of his article to make it more dire against gold.

Jan 16, 2014 - 1:57pm

wanna see panic and capitulation

turn on cnbc and watch Nu Skin.

trading has been halted at least three times, price gapping lower each time.

spread between bid and ask is something like 3-5% of stocks value.

the pit is packed and there is little talking, just staring at screen.


this could be a great analogy to what could happen to the metals in a black swan.

edit - halted 4th time - on a gap up.

Clarki Stomias rl999
Jan 16, 2014 - 2:25pm

Re: wanna see panic and capitulation

Don't worry about the 33% Drop in Nu Skin or the 10% drop in Herbalife either.

They are also just slumps. Er, Speed bumps. They're speed bump slumps.


Jan 16, 2014 - 2:32pm
Jan 16, 2014 - 2:35pm

Shortage Of Gold Bars

Shortage Of Gold Bars Develops In London – Follow The Money / BY DAVE IN DENVER / JANUARY 16, 2014

It appears as if that old adage that a rumor can’t be confirmed as being true until its been officially denied several times applies to the London gold bar market, as it was reported last night by a London Metals Exchange reporter that premiums on “good delivery” bars are now above the spot price of gold, something which is rarely observed in London: Gold Bar Shortage In London

Asian and Middle Eastern Central Banks and investors are hoarding an enormous amount of the 400 ounce LBMA “good delivery” bars that make London the largest physical gold trading market in the world. As the price of gold was aggressively manipulated lower by the Federal Reserve and its agent bullion banks since mid-2011, eastern hemisphere sovereign, Central Bank and investment buying – especially the Chinese – intensified.

With negative “gold forward” rates having been negative for a predominant part of the last half of 2013, I was wondering when a shortage of London bars would be reported. A negative “gold forward” rate means that the entity (bullion bank) who is borrowing or leasing the bars today in order to deliver them into buyers will pay more today for the ability to take delivery of bars now than it would cost to buy them for delivery in the London “forward” market – i.e. anywhere from a month to a year from now.


Clarki Stomias
Jan 16, 2014 - 2:35pm

Re:Okey-dokey then

Do you think that was some of the big news that Andy was hinting at?

Clarki Stomias
Jan 16, 2014 - 2:36pm


But it should certainly help to speed up the unveiling.

Jan 16, 2014 - 2:40pm

Delivery Month

Please excuse me for my silly question. What makes a "delivery month" an active delivery month? If you wanted delivery in March could you get it?

As a side question is there any way to determine whether institutions or private individuals own the eligible gold by say JPM?

Clarki Stomias
Jan 16, 2014 - 2:48pm

Re: Okey-dokey then - Bloomberg

Looks like that story just hit Bloomberg too. We'll see where this goes.

Jan 16, 2014 - 2:50pm

OI continues to creep higher

Another 800 in gold yesterday and another 700 in silver.

BTW, Jan copper still showing an OI of 1,400.

Jan 16, 2014 - 2:57pm

Zerohedge on German Regulators

"It may be time to shift yet another conspiracy "theory" into the "fact" bin"

It is time to throw out this quote again that I have been throwing around lately:

"to not believe in conspiracies is ludicrously irrational-requiring the dismissal of all observation regarding verified history-"

Jan 16, 2014 - 2:59pm

Not sure that "China has

Not sure that "China has announced" is an accurate way to put it but this is certainly significant news:

Jan 16, 2014 - 3:05pm

Zh manipulation

Wonder what trader Dan Jeff cwistian etc have to say now Cnbc? Cftc? Sec? Bart?. Smeegly Gensler? Chartist fiend?? Oh andd first agin ---- Crickets chirping ,,!,! Haha !,


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