We monitor the daily open interest changes in Comex gold and silver. We also wait each Friday for the latest Commitment of Traders report. Once a month, however, we also get the Bank Participation Report and, though it might be complete garbage and full of lies, we also need to consider this report for some historical perspective.
We've written about these CFTC-generated reports so many times, it would be impossible to link every post. However, nearly every post began with these bullet points. Here they are again, just so that we're on the same page:
- The CFTC's Bank Participation Report is issued monthly from a survey taken at the Comex close on the first Tuesday of every month. The report summarizes the combined positions of the four largest U.S. banks (primarily JPM, MorganStanley, Citi, Goldman but occasionally others) and the twenty largest non-U.S. banks (Scotia, HSBC, DeutscheBank, UBS, Barclays and others).
- These reports might be utter nonsense and complete falsifications, designed to mislead you and get you leaning the wrong way. In 2014, JPMorgan was fined by the CFTC for "repeatedly submitting inaccurate reports relating to the required reporting of positions". See here: https://www.cftc.gov/PressRoom/PressReleases/pr6968-14
Again, we know that what The Banks report as their "positions" provides an incomplete picture at best. Not only do The Banks maintain considerable long and short bets in the OTC market, they also operate numerous, offshore hedge funds and utilize these funds to take positions not included in the CFTC data as "commercial". So, what good are these reports? Similar to the weekly Commitment of Traders reports, the Bank Participation Report is only useful/interesting when considered historically. Here's an example. Note how the positioning of the 24 Banks changed through 2015:
12/2/14 @$1199 GROSS LONG GROSS SHORT TOTAL NET
U.S. Banks 20,927 29,543 -8,616
Non-US Banks 21,154 73,145 -51,191
Price rallied in early 2015, reaching the 2015 high of $1308 in late January and, by the first Tuesday of February 2015, the report looked like this:
2/3/15 @$1260 GROSS LONG GROSS SHORT TOTAL NET
U.S. Banks 9,163 65,901 -56,738
Non-US Banks 20,009 96,264 -76,255
As you no doubt recall, price then declined through the balance of 2015 as the bear trend continued. The 24 Banks used this price weakness to add a few longs and cover a bunch of shorts. By the December BPR, the data looked like this:
12/1/15 @$1060 GROSS LONG GROSS SHORT TOTAL NET
U.S. Banks 9,613 42,866 -33,253
Non-US Banks 39,407 36,911 +2,496
Yes, you are reading that correctly...The 20 Non-US Banks actually had a cumulative NET LONG position in Comex gold futures as of 12/1/15. And even as price began to rally in late December and early January, the report still revealed this:
1/5/16 @$1078 GROSS LONG GROSS SHORT TOTAL NET
U.S. Banks 6,387 49,447 -43,060
Non-US Banks 35,499 37,698 -2,199
And we all know what happened next. Aided by a sharply falling USDJPY and the installation of negative interest rates in Japan and in the Eurozone, gold has rallied strongly. Along the way, it has finally broken out of its 3-year downtrend, its moving averages have all bullishly crossed and the mining shares have soared by over 100%.
So, have The Banks...particularly the Non-US Banks...played along and made fiat cash? Have they just been neutral in their efforts to "provide and maintain orderly markets"? Hardly. The latest Bank Participation Report was surveyed last Tuesday and released last Friday. It revealed this:
5/3/16 @$1292 GROSS LONG GROSS SHORT TOTAL NET
U.S. Banks 10,791 118,437 -107,646
Non-US Banks 21,905 109,511 -87,606
Again, what good are these numbers without context? So, here's some context:
- Last week's Commitment of Traders report showed the total NET short position of the Comex gold "Commercials" to be 294,901 contracts. We now know that 66% of this cumulative position comes from accounts specifically reported to be "Banks".
- Note that during the price rally, The 24 Banks have not only added massive shorts, they've also sold existing longs. Are these the actions of entities looking to profit from higher prices or lower prices?
- Adding together ALL of the 24 Bank positions you get 260,644 contracts. Last Tuesday's cumulative open interest was 565,774. Thus, as of last Tuesday, The 24 Banks held a stake in 46% of ALL open interest on the gold Comex. Compare that to 12/1/15 when The 24 Banks held 33% of all open interest.
- And don't forget, the standard Cartel Shills and Apologists will argue that these altruistic Banks are just performing a public service. They're "making an orderly market" and simply "providing needed services" for miners wishing to "hedge and forward sell future production".
But lastly, here's the point of this post and the context of which you simply must be aware...
After peaking in September of 2011, paper price fell to $1525 in a few weeks. Over the next 12 months, price gradually recovered and, when The Bernank announced QE3 in September of 2012, every single precious metals "analyst" (including this one!) thought that even higher prices were a near certainty. We all knew what had happened to the paper price of gold through QE1 and QE2 and, more importantly, we all knew the long-term relationship between the price of gold, the level of U.S. debt and the Federal Reserve balance sheet. See here: https://www.zerohedge.com/news/what-does-4-trillion-fed-balance-sheet-me...
But a funny thing happened on the way to the coin shop. As we all know, gold DID NOT go higher. Instead, against all logic and intuition, gold went lower. Slowly at first and then all at once in the massive raids of April 12-15, 2013, which broke long-term support of $1525 and sent us to the final bottom and lows of late last year.
As a point of interest, perhaps we should check the Bank Participation Report from early October of 2012. Recall that price back then was near $1800 (versus near $1300 today) and total Comex gold open interest was 481,000 contracts (versus 566,000 last Tuesday).
10/2/12 @$1800 GROSS LONG GROSS SHORT TOTAL NET
U.S. Banks 40,625 146,809 -106,184
Non-US Banks 34,881 113,445 -78,564
So, let's summarize. Though the data provided by the admitted lying Banks is incomplete and though the report is compiled by the criminally-complicit CFTC, you should be certain to take note of the similarities. Just as in late 2012, the situation "feels" strong and the fundamental case for paper gold is compelling. However, which forces actually control the paper market? Do such things as physical fundamentals matter? Do macro-economic conditions matter? Or, does the positioning of the market-manipulating Banks play a larger role in determining the future direction of "price"?
As you can see, we're now three and a half years later and price is over $500 lower...yet The 24 Banks now have a summary NET short position that is more extreme than ever. Will The Banks lose this time? Will they be forced to cover shorts into higher prices instead of lower? Will there be physical delivery failures as gold ownership increases globally? Or will The Banks simply be successful again in rigging prices lower so that they can profitably cover their ill-gotten shorts?
We'll see. Chances are we're not going to have to wait long to find out. As always, prepare accordingly.