Considering The Latest Bank Participation Report

Fri, Jun 13, 2014 - 8:59am

The latest Bank Participation Report was released last Friday afternoon. I know that's six days ago but I needed some time to give it full consideration...and I'm still not certain I can draw any real conclusions. So, here's what I think along with things that I think I think.

First of all, three very important points about this and all other past and future BPRs:

  1. There are two categories, US Banks (the 4 largest but this is 80-90% JPM) and non-US Banks (the 20 largest including The Scoshe, Douchebank, HSBC, Barclays, UnlimitedBS).
  2. The information could be completely worthless and and full of lies and distortions. Why? Unlike the weekly Commitment of Traders Report where open interest between Specs and Commercials has to cancel each other in zero-sum fashion, the monthly BPR simply relies upon the reported position data from the 24 banks. This means a bank could conceivably report completely falsified numbers to the CFTC. What's to stop them? It's not like the CFTC sends auditors out each week to verify the data.
  3. The information only measures reported positions on The Comex for the 24 banks. Of course, many or all of these banks often maintain mountainous "offshore" positions in countless, exotic derivatives. So, even if a bank cares to accurately report its Comex positions, you're likely only seeing one side of a position. For example, a bank may write an exotic, over-the-counter call for a customer/muppet. To hedge the risk of this bet, the bank might purchase X number of Comex contracts. In the BPR, you'd only see the futures contracts, not the offshore derivative.

With these two points in mind, let's start with the latest BPR from the survey taken last Tuesday, June 3 with price at $1245.


6/3/14 $1245 382,141 total OI

US Banks 42,075 33,093 +8,982

Non US Banks 18,990 51,808 -32,818

TOTAL 61,065 84,901 -23,836

This is an "improvement" over last month...but not much:


5/6/14 $1308 404,700

US Banks 54,774 42,615 +12,159

Non US Banks 22,136 65,098 -42,962

TOTAL 76,910 107,713 -30,803

So, over the past four weeks and as price declined by $63 or about 5%, the US Banks dumped some longs and covered some shorts, as did the Non-US Banks. In the end, the combined 24 banks reduced their total, NET position by about 20%. Woo-hoo. As of last Tuesday, the banks are still NET SHORT. Thus, I'm not quite ready to give the all clear for June.

Of course, like anything else, this data is not much help without context. Want to know why gold has been savagely and counter-intuitively attacked ever since the start of QE∞? All you need to do is go back to the BPR of 10/2/12 and you'll have your answers. For when QE∞ began, The Banks were caught flat-footed and already short hundreds of tonnes of paper gold. Price simply could NOT be allowed to zoom higher, at least not from $1800. The next 9 months were all about raiding price to inspire the Specs to take on the short position from The Banks. Take a look at these next two BPR summaries and note the date and price of each.


10/2/12 $1800 480,908

US Banks 40,625 146,809 -106,184

Non US Banks 34,881 113,445 -78,564

TOTAL 75,506 260,254 -184,748


7/2/13 $1220 410,399

US Banks 69,656 24,939 +44,717

Non US Banks 34,904 58,656 -23,752

TOTAL 104,506 83,595 +20,911

Isn't that remarkable? By engineering the counter-intuitive decline and then accelerating the decline with the massive raids of 4/12-15 of 2013, The Banks were able to convert a NET SHORT position of nearly 185,000 contracts into a NET LONG position of nearly 21,000 contracts. That's a NET change of 206,000 contracts or 640 metric tonnes of paper gold! Criminal bastards.

OK, so what else can we deduce from just this information above?

  • The total, 24 Bank GROSS short position has been reduced from 260,254 contracts to 84,901 last week. Still a significant amount but also almost exactly what it was at the bottom late last June and early July.
  • Total open interest plummeted by nearly 100,000 contracts from 10/1/12 - 6/3/14. Why? Because the Banks have closed out over 90,000 NET contracts.
  • The biggest overall change, by far, comes from the US Banks (JPM). On 10/2/12, their NET position was 106,184 short. At its peak on 8/6/13, it had flipped to 59,473 NET LONG and now as of last week it's down to 8,982 NET LONG.
  • Obviously, there's A LOT of historical BPR data available and you can drive yourself crazy trying to make draw reasonable conclusions (I almost did these past few days). But let me just give you one more data point to consider that, given where we are from a price standpoint, seems to be the most important at this moment in time.


    2/4/14 $1252 368,279 (note the similarities to this month's report in price and OI)

    US Banks 68,658 24,937 +43,721

    Non US Banks 18,752 48,860 -30,108

    TOTAL 87,410 73,797 +13,613

    Well now, what do we have here? Notice that:

    • After a $140 roundtrip in price over 4 months, the total positions of the non US banks are nearly unchanged.

    What has changed?

    • JPM and the other US banks have trimmed their GROSS long position by nearly 1/3 and they've consistently liquidated longs every month since October 2013.
    • JPM and the other US Banks have increased their GROSS short positions by nearly the same percentage over the same time period.

    So, while price was driven higher, fueled by lower interest rates and speculation relating to Ukraine, JPM was selling the whole way in an attempt to contain the rally (below the all-important down trendline). Once price peaked on 3/16, JPM continued to sell, exacerbating the price selloff. This is particularly visible in the change from just one month ago, listed back at the top of the page.

    In the end, what are we to make of all this? Again, first and foremost, you must keep in mind rules #2 and #3 listed at the beginning of this post. With those rules in mind, I'll leave you with these conclusions:

    1. JPMorgan and the other US banks control and set price on the New York-based Comex. As we began to point out last summer, all of the other non US banks seem to just be along for the ride, to some extent simply following JPM's lead.
    2. The current BPR structure (NET SHORT 23,836) is not nearly as outright BULLISH as it was on 8/6/13, 12/3/13 or 1/7/14 when the TOTAL, 24-bank position was NET LONG 37,000, 43,000 and 33,000 respectively.
    3. All thoughts of JPM "cornering the Comex" have been put to bed as they've trimmed their proprietary NET LONG position by more than half while price has declined $30 between 8/6/13 and 6/3/14.
    4. It would seem now that JPM only acquired the NET LONG position with the sole intent of using it to suppress any bounceback rally that appeared in late 2013 and 2014.

    Please feel free to add your own observations and conclusions into the comments section of this thread.


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