Understanding The Latest Bank Participation Report

79
Wed, Jul 9, 2014 - 9:37am

If you look at it in the proper context, it makes perfect sense.

Again, in December of last year, Ken Hoffman of Bloomberg Industries inadvertently told us all that we needed to know about 2014. Rather than subject you to another lengthy dissertation on "the empty vaults of London", I invite you to review this post from last week if you need a refresher:

https://www.tfmetalsreport.com/blog/5901/halftime

So if, as I and Mr. Hoffman contend, the vaults of London are empty, it becomes critical in 2014 for The Bullion Banks to do everything in their collective power to dampen price and momentum, thereby crushing sentiment and investment demand. And their strategy has worked! Even though price has surged over 10% YTD and gold is the top-performing asset so far this year, you'd never know it by listening to the financial "news". Instead, we're subjected to the constant drumbeat of sell-side recommendations and bullion bank scare tactics. Some examples:

https://www.mining.com/morgan-stanley-gold-price-wont-see-1300-again-92623/

https://www.zerohedge.com/news/2014-07-04/complete-annotation-socgens-la...

https://www.marketwatch.com/story/gold-might-be-up-this-year-but-its-wor...

Again, quoting Mr. Hoffman:

"So the most interesting thing, especially as we look in to 2014, is if there is interest in gold again, and I'm not saying there is or isn't, that gold is just not there anymore."

If, indeed, the primary goal of The Bullion Banks for 2014 is to control price and lessen physical demand, then we should expect heavy Bullion Bank selling on the monthly Bank Participation Reports and that is exactly what we have.

First a quick review...The monthly Bank Participation Report is a summary of the positions of the 24 "largest" banks, with the survey taken on the first Tuesday of each month. The report is broken down into two categories:

US Banks: The four largest but this is 70-80% JP Morgan. Each month it might also include Goldman, MS, Citi and others

Non US Banks: The twenty largest but this is primarily HSBC and Scotia with a little Barclays, DB, UBS and CS thrown in

On 10/2/12, with the onset of QE∞ and the subsequent, counter-intuitive and bank-rescuing price raid down from $1800, the BPR looked like this:

DATE GROSS LONG GROSS SHORT NET POSITION

10/2/12 $1800

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

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

TOTAL 75,506 260,254 -184,748

As documented here ad nauseam, The Banks used the price raid from 10/1/12 - 6/28/13 to dramatically alter their short position. Into all of the speculator selling, The Banks were buying and covering and by the BPR of 6/4/13, their combined NET SHORT position had flipped to a NET LONG position for the first time in memory. This position then grew and shrank through the balance of 2013 but, but by the BPR of 1/7/14, it looked like this:

DATE GROSS LONG GROSS SHORT NET POSITION

1/7/14 $1229

US Banks 59,291 20,032 +39,259

Non US Banks 26,128 32,492 -6,364

TOTAL 85,419 52,524 +32,895

The difference is startling. After being NET SHORT 575 metric tonnes of paper gold on 10/2/12 at $1800, The Banks were now NET LONG 102 metric tonnes at $1229. A remarkable bit of prescient trading, wouldn't you say?

Well, not so fast. It quickly became clear as the calendar flipped to the new year, that The Banks had built up this "war chest" for the sole purpose of suppressing price in 2014. Again, why? Let Ken Hoffman tell you:

"So the most interesting thing, especially as we look in to 2014, is if there is interest in gold again, and I'm not saying there is or isn't, that gold is just not there anymore."

And don't forget this chart. It is the single-most important chart you'll see for gold this year:

As the chart clearly shows (note the blue arrows), anytime price has risen thus far in 2014, The Banks have stood ready to sell longs and add shorts, thereby maintaining price below the trendline. This serves to reinforce the downtrend, maintain "the bear market" and suppress sentiment. Can we see evidence of this Bank scheme in the BPRs? You bet!

On the initial rally from The Double Bottom low of 80 on 12/31/13, price reach the main trendline in late February. There was a BPR taken on 3/4/14 and look at the dramatic changes that had already occurred:

DATE GROSS LONG GROSS SHORT NET POSITION

3/4/14 40

US Banks 56,272 30,669 +25,603

Non US Banks 17,526 54,385 -38,859

TOTAL 73,798 85,054 -11,256

As you can see, in their vain attempt to suppress price and sentiment, The Banks had already flipped back to NET SHORT, adjusting their position by a NET of 44,151 contracts or 137 metric tonnes of paper gold. And it worked! Just two weeks later, momentum was halted and price was driven back by 0 in just two weeks. As the chart above shows, though, through April and May there were repeated attempts made to cross back above the main trendline and each attempt was rebuffed by The Banks. How do we know this? Let's look at the BPR from 90 days later.

DATE GROSS LONG GROSS SHORT NET POSITION

6/3/14 44

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

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

TOTAL 61,065 84,901 -23,836

The BPR certainly bears this out, does it not? As price kept trying to rally back above the trendline, The Banks kept selling. You can see this on the chart and now you can see it on the BPR, too.

So, let's now look at the latest BPR, from the survey taken last Tuesday and released late yesterday. Price rallied through the four week period from 44 to 26. That's or about 6.5%. In doing so, it broke the main trendline again but then stalled.

And why did price stall? Because The Banks are desperately trying to keep price in check and near the main trendline. Can we see evidence of this Bank selling on the latest BPR? Of course.

DATE GROSS LONG GROSS SHORT NET POSITION

7/1/14 26

US Banks 35,848 48,182 -12,334

Non US Banks 16,450 78,549 -62,099

TOTAL 52,298 126,731 -74,433

So, in just the past four weeks and in a desperate attempt to suppress and contain this latest paper price rally, The Bullion Banks have added 50,597 new net shorts or over 157 metric tonnes of paper gold.

Does this conclusively prove my theory that The Vaults of London are empty and that the increasingly-desperate Bullion Banks will be willing to go to great lengths to contain any price rally that might improve sentiment and increase Western physical demand? I believe so. It certainly fits the pattern and it is precisely what you would expect them to do.

And again, why are they doing this? They had successfully extricated themselves from an historically huge short position at the onset of QE∞ and were actually positioned LONG at The Double Bottoms of 2013. Why would they work themselves right back into the same short trap? And don't give me that laughable excuse of "hedging". Reuters and GFMS just reported yesterday that total producer hedging increased by just 9 metric tonnes in Q1 2014. The total 24 bank net position changed by 180 metric tonnes in Q1 2014! https://www.reuters.com/article/2014/07/04/gold-hedging-idUSL6N0PF2J8201...

Nope. There is simply no other, logical conclusion. It looks like this:

  • To eliminate their excessive short position at the onset of QE∞, The Bullion Banks schemed the counter-intuitive selloff from $1800 to $1200 in 2013.
  • This allowed them to flip their position by 677 metric tonnes, from net short 185,000 contracts to net long 33,000.
  • What they didn't anticipate was the record physical demand that stemmed from the huge price discount. This demand drained the vaults of London and left The Banks without the metal needed to supply fresh demands from investors, should price, sentiment and demand return in 2014.
  • As price inevitably rallied, The Banks have been liquidating their long positions and printing new naked shorts, all in the hoped of containing the rally and maintaining the downtrend from April 2013.

What will they do next? Sell more, of course! It's what they do! They are trapped and, like any trapped animal, they will fight for their very survival. We must therefore expect continued raids and price pressure as the Banks desperately attempt to get price back below the main trendline. Will they be successful? Frankly, who cares? At this point, it doesn't matter. Both higher AND lower prices only serve to exacerbate their problem which is physical demand.

The Bullion Bank hold on the global gold price is breaking and it is tenuous at best. As Ken Hoffman told us, The Vaults of London are empty and there is no gold should Western demand return. The end of the fractional reserve bullion banking system is, most assuredly, coming as the connection between paper and physical price finally breaks. All you can do is...prepare accordingly.

TF

About the Author

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turd [at] tfmetalsreport [dot] com ()

  79 Comments

CPE
Jul 8, 2014 - 11:49am

Gold

MOAR!!!

Danforth Coxwell
Jul 8, 2014 - 11:52am

Third...

Just have to wait and see!!

Swineflogger
Jul 8, 2014 - 11:52am

Confused As Usual

2nd

It occurs to me that as I drive my pickup hither and yon tuned in to a variety of AM stations, they are ALL pushing gold and silver buying hard and all day long. What am I supposed to take away from this fact? Are not enough people listening . . .

EDIT: 3rd

Doople
Jul 8, 2014 - 11:55am

Interesting Week

Gold is overbought by almost any technical analysis. Wednesday is the release of the Federal Reserve minutes which makes this a good time to drive the metal down. The wild card is Thursday when the Indian government releases the new budget. Do the tough import rules regarding gold get eased? Could be a whip saw this week.

SteveW
Jul 8, 2014 - 12:03pm

Thanks

for a cogent well reasoned report, especially after yesterday's rant when I really got concerned about whether you might be susceptible to hypertension.

Good to see that you're taking it all in stride after a good night's sleep and not letting their machinations get you down. As you say they're screwed whether gold goes up or down. Sideways looks to be all they can manage right now.

Looks like the London monkeys were asleep last night but what happened at 10 am EST as an excuse to slam PMs and how big was the dump?

snarf55
Jul 8, 2014 - 12:11pm

These guys are desperate!!!

Hey Turd,

You should have seen the run rate early this morning on the good junior and intermediate gold stocks before the smash down.

There was volume and strangely, big bank participation all over the tape. When all that firepower that was used yesterday was

not sticking the desperate blew a big wad. If I'm correct, this smash down won't stick either.

We shall see.

Snarf.

wildstylechef
Jul 8, 2014 - 12:14pm

1ST

YA

Where do we go from here as the weeks ahead will tell the tale as the stock market has stretched the bubble as far as it can go. The government has stretched the truth as far as employment and debt spending. A large number of conflicts are petering on exploding into full fledge wars. Gold shortages are being kept at bay by the very banks and organizations that have sold the gold off buy using their cash to sell off paper gold and keep the price from breaking out.

But time is running out as we approach the prime months of August through September where gold explodes and markets collapse and we have the two at all time extremes. No matter the COT come sometime very soon this shall collapse and they will loose control of gold and sorry to say the US will loose control. December calls shall do very well.

AS TO COT OR better yet DCOT the most important group the producers are far off the massive shorts they had when gold was at the all time highs. Its the hedge fund patsies that are holding the most of the shorts and they are about to be screwed

Jul 8, 2014 - 12:28pm

The Devil! Gold going down...

Does anyone else see the devil in this current chart pattern? Or maybe it is Batman. I wonder what this portends?

Doople,

Seems like the Indiana have been helping the banks lately--with the gold restrictions last year and the sale of bullion recently. I predict their budget and policy will continue to be against us.

indiana rod
Jul 8, 2014 - 12:29pm

Silver Shorts

Thursday, June 19, we had the 87 cents gap up in silver. The C. O. T. Report for that week showed 100 million ounces of silver was sold short, a one week record

I can't help but think what the price of silver would be if not for all the naked shorts.

stackaloha
Jul 8, 2014 - 12:43pm

Turd thank you

I have learned more about how markets worked since joining your site than I expected. I am new to paying attention to markets and the forces within, the way you explain it makes sense and converts to other types of markets. Thanks again

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