Onward Toward Bullion Bank Collapse - UPDATED

Tue, Jul 5, 2016 - 12:14pm

Since writing this report on June 25, The Banks have surged total Comex gold open interest by another 22,000 contracts or 3.5%, all in a desperate attempt to contain the "price" of gold below the post-Brexit highs.

The purpose of this update is to once again highlight the tenuous and desperate situation of The Bullion Banks. These Banks are trapped short in Comex paper gold derivatives and they are clearly attempting to contain/restrain price below $1350 and the post-Brexit highs near $1360. How do we know this? Check the chart below:

The usual Shills and Apologists will claim that the benevolent, altruistic Banks are merely "acting in their role as market-makers" and "providing risk management services for their mining company clients". To that end, you and I are supposed to believe that the 71,309 new Comex gold contracts created since June 23 were done so in order to "maintain an orderly market" and "allow producers to forward sell or hedge" 7,130,900 ounces of gold (about 222 metric tonnes or 7% of global production).


Instead, this Friday's CFTC-generated Bank Participation Report will likely show a NET short position for the 24 largest, global Banks to be in excess of 250,000 contracts. This means two things:

  • On Comex alone and for their own, proprietary accounts, these 24 Banks are NET short 25,000,000 ounces of paper gold. That's about 778 metric tonnes of "gold" or just a shade over 25% of annual, global mine supply.
  • On every $10 move UP in gold going forward, these Banks incur paper losses of $250,000,000. Thus, a move from $1350 to $1390 will "cost" these Banks about $1B in paper losses.
  • And this is why The Banks are so desperate to contain the paper price here. BUT THEY WILL LOSE! Brexit, NIRP, Eurozone bank collapse, global QE and all the rest WILL all combine to drive physical demand for gold past the point where the Bullion Banks will be able to deliver it. Once delivery failures begin, the collapse of the Paper Derivative Pricing Scheme will quickly follow. From there, where will prices head? We can't know for sure but we can say with certainty that prices will NOT be $1350 an ounce for gold and $20 an ounce for silver.

    Again, please take time to read the original post below, pausing to consider the desperate actions of The Banks in the days since. Then ask yourself if you own enough physical gold and silver. If the answer is "no", then we suggest you get your hands on some while there's still time. If you wait until after The Bullion Bank Paper Derivative Pricing Scheme collapses, it will be too late.




    The events of Friday not only speed the eventual collapse of the Bullion Bank Paper Derivative Pricing Scheme, they also highlight the fraud of this current system and shine light upon the utter desperation of these Banks to maintain it.

    We've written about this countless times over the past six years. Here are just two recent examples:

  • https://www.tfmetalsreport.com/blog/7576/fun-comex-open-interest
  • https://www.tfmetalsreport.com/blog/7605/comex-gold-open-interest
  • In short, as a measure of controlling the paper prices of gold and silver, The Bullion Banks that operate on The Comex act as de facto market makers of the paper derivative, Comex futures contract. This gives them the nearly unlimited ability to simply conjure up new contracts from thin air whenever demand for these contracts exceeds available supply and, almost without exception, these Banks issue new contracts by taking the short side of the trade versus a Spec long buyer. Never do these Banks put up actual collateral of physical metal when issuing these paper derivative contracts. Instead, they simply take the risk that their "deep pockets" will allow them to outlast the Spec longs and, without the risk of having to make physical delivery, The Banks almost always win. Eventually, an event like the runup to the Brexit vote or all of the Fed Goon jawboning of May will spook The Specs into selling and this Spec selling is used by The Banks to buy back (cover) their ill-gotten naked shorts and lower total open interest back down. (If you're confused by this, please click the second link listed above for a more detailed explanation of this process.)

    How this influences price is simple. If the supply of the paper derivative futures contract was held constant on a daily basis, then price would have to rise or fall based upon simple supply/demand dynamics. When the amount of buyers exceeded sellers, price would have to rise to a point at which existing owners would be willing to sell. But this is NOT how the Comex futures market operates! Because the market-making Banks have the ability to create new contracts from whole cloth, they can instead flood the "market" with new supply whenever it's necessary. This mutes potential upside moves by imparting fresh new supply for the Spec buyers to devour. Price DOES NOT have to rise to a new, natural equilibrium. Instead, price equilibrium is found where demand meets this new supply.

    As a case in point, simply study the "market" impact on gold "prices" in the hours that followed the Brexit decision in the UK. As turmoil shook the global markets, gold shot higher and, at one point, was up nearly $100. However, within hours it had given back nearly half of those gains and then spent the remainder of the day in am unusual and very tight trading range while virtually every other "market" was rocked with volatility throughout the trading day. See below:

    The all-important question of the day is: How and why was this done?

    First, the "how". At the end of each trading day, the CME Group issues an update that details total open interest changes for both gold and silver. Friday's preliminary totals can be found here: https://www.cmegroup.com/trading/metals/precious/gold_quotes_volume_voi.... What does the data show? On Friday, with global markets in turmoil and precious metals markets rallying significantly, The Bullion Banks on the Comex issued brand new supply of nearly 60,000 new paper gold contracts! At 100 paper gold ounces per contract, this represents a potential future obligation to deliver almost 6,000,000 ounces of gold, should the Spec long buyers ever stand for delivery (which they won't). So, ask yourself these questions:

    • Did the world's gold producers all suddenly decide to forward sell and hedge 186 metric tonnes of future production yesterday, just as the most significant economic event in eight years was beginning to unfold?


    • Did the Bullion Banks suddenly put up a few million ounces of their own gold and then lever it up a few times and issue 60,000 new contracts based upon this collateral deposit?

    Obviously, the answer to both questions is a big, bold NO! Instead, the market-making and price manipulating Banks simply played their usual game, writ large. In a desperate attempt to contain price, they simply issued these 60,000 new contracts and fed them to the Spec buyers. So next, ask yourself these vital questions:

    1. Without this added supply...which grew total open interest by over 10% in one day!...how much further would the paper price of gold have risen yesterday?
    2. If a natural equilibrium was forced to be found between buyers and sellers of existing contracts, would price have settled even higher?
    3. And how much higher? Gold was up nearly $60 yesterday. But without the paper derivative supply increase of 10%, would it have risen $100? $200??

    So now let's address the more important part of the question: "why".

    Simply put, these Banks are desperate and on the run. However, in their arrogance, they are still flailing away and attempting to postpone their demise. The minimal amount of physical gold that they do hold and utilize to backstop the paper derivative market is shrinking rapidly as investors and institutions around the globe seek gold as a safe haven against the financial devastation of negative interest rates.

    But not only are The Banks attempting to reverse this trend that is rapidly deleveraging their system, they are also desperate to protect their established NET short positions from additional paper losses. Recall that the CFTC generates something that it calls The Bank Participation Report every month and we write about this report almost every month, too. Here's the latest: https://www.tfmetalsreport.com/blog/7675/latest-bank-participation-report

    So let's cut to the chase...

    With gold at $1060 back on December 1, 2015, the 24 Banks covered by this report were NET short just 30,757 Comex gold contracts. After running this NET short position all the way to 195,262 contracts on May 3, 2016, the report for June showed a NET short position of 133,396 contracts. However, data for this latest report was surveyed on June 7, with price at $1247 and total Comex open interest of 496,330 contracts. By this past Tuesday, in the days before the Brexit total were announced, price had risen to $1318 and then fallen back to $1270. However, total Comex open interest had risen to 571,517 contracts and, by analyzing the latest CFTC-generated Commitment of Traders Report, we can safely estimate that The Banks were likely NET short at least 180,000 Comex gold contracts.

    Putting this all together, while price rose from $1060 to $1270, these 24 Banks added about 150,000 contracts of NET short liability to their Comex trading operations. So, with a NET position of 180,000 contracts short and with every contract representing 100 ounces of paper gold, the paper losses to these Banks for every $10 move in the gold price amounts to about $180,000,000. Multiplying that out...When gold was up nearly $100 early Friday, these Banks were on the losing side of a $1,800,000,000 move. Even for the likes of JPM et al, that's a lot of fiat!

    So, what did they do? Like any arrogant and addicted gambler, they doubled-down! They put "good money after bad" and, in doing so, likely increased their NET short position to nearly 250,000 contracts! All of this in order to suppress price and get it back under their control. This also allows them to somewhat control the message gold was sending. Can you even imagine the headlines if gold was up $200 yesterday? By holding the gains to just $50, The Banks hope to:

    • Manage the increased physical demand these higher prices are causing AND
    • Mitigate their paper losses. All of those new shorts lowered price by nearly $50 and nearly cut their one-day paper losses in half.

    In the end, what's the point of this post? First and foremost, it's simply the latest installment of our efforts to shine the light of truth upon the incredible fraud and sham that is the current paper derivative pricing scheme. The Comex-derived price is not at all related to the price/value of true physical gold. Rather, the price discovered on Comex is simply the price of the derivative, itself, with the price of this derivative determined by changes of supply and demand of the derivative. Barely any physical metal ever exchanges hands on Comex so it is entirely inaccurate to say that the price discovered there has any connection at all to the underlying physical.

    That said, though, we'll leave you with one last link that you simply must read. Mark O'Byrne at Goldcore is closely-connected on the ground in London. In all of the hubbub of the Thursday and Friday, you may missed his daily report. If Mark and his sources are correct, we may be rapidly approaching the demise and destruction of these criminal Bullion Banks and their fraudulent pricing scheme. Demand for unencumbered, true physical gold is the key to ending this system and finding justice for gold holders, miners and producers around the globe...and this link may prompt you to think that we are closer to The End than at any other time in the past 40 years: https://www.goldcore.com/us/gold-blog/gold-lower-despite-panic-due-to-su...

    Friday's Brexit vote truly was a game-changer and the single most important financial event since 2008. That it might accelerate the death throes of the Bullion Bank Paper Derivative Pricing Scheme is not something that is fully appreciated by the global gold "community". Hopefully, this post has helped you to understand where we are at present, the reasons behind the price action of Friday and the significance of global physical supply/demand versus paper price going forward.



    About the Author

    turd [at] tfmetalsreport [dot] com ()


    Jun 25, 2016 - 12:05pm

    For more information...

    At around mid-day on Friday, I recorded this with Rory Hall and Dave Kranzler. Please watch/listen:

    Jun 25, 2016 - 12:20pm

    So much great info...

    TF thank you for all your hard work!!

    Jun 25, 2016 - 12:23pm

    So much great info....

    TF thank you for all your hard work!!! Now go enjoy your weekend.

    Ahh...don't know how to remove double post!

    gold slut
    Jun 25, 2016 - 12:28pm

    Best weekend in a long, long time.

    Friday: Brexit, Cameron falling on his sword.

    Saturday: Postman delivered another ounce of yellow shiney to my door (bought Wednesday night - now £100 more expensive).

    Jesus, this has been one Sh#t-kicking weekend!

    Edit: Oh, and third! I may have to have a lie down!

    Jun 25, 2016 - 12:32pm

    Are we there yet? Are we there?

    Like an anxious kid in the car ...

    No not yet but can vaguely see the destination on the horizon.

    coin collectress
    Jun 25, 2016 - 12:38pm

    Outstanding, Turd

    The light at the end of the tunnel appears larger and larger. Watch out for trains though! Lol.

    Thanks for giving up part of your week-end to spread the truth to subscribers and the public.

    Jun 25, 2016 - 1:21pm

    Thursday nite

    we all know that gold quickly ran to up 102 from down maybe 10 when Nigel looked like he was conceding.

    Then at 102 up gold turned around and settled in at 60-70 up

    what I think we saw first ws a 102 run up when buyers outnumbered sellers and then whoosh the sellers came in.

    1350 was the level along with breeching 100 up--it gave the BB's an open door to create a selling environment.

    They have a weekend time out on the field to develop their next play while the longs are not coordinated. The BB problem is they are running out of physical room to play and moreso as our uncoordinated group grows.

    Jun 25, 2016 - 1:26pm

    TF, What happens if buyers don't allow a big drop?

    I'm not the sharpest knife in the drawer.

    I've always assumed that the "Banks" plan is go crazy short until the buying panic subsides, manufacturer a downtrend, and cover shorts after the specs panic and sell.

    I've always hoped that one of these times events cause buyers to keep pushing the price price up, the "Banks" eventually have to cover shorts, and the price gets out of control to the upside.

    But can you explain to me what happens if it something in between? What will the "Banks" do if the big physical buyers support the price at say $1280-$1300? I mean forever.

    Can the Banks maintain their current short exposure indefinitely at the current price? If they can't manufacture a downdraft will they be forced to cover at some point at $1,300 and then up? Or can they just keep their short contracts forever?

    In other words, can the "Banks" be forced into a situation where it is THEM that starts the short squeeze (buying back their shorts at $1300 realizing that no downtrend is possible and driving price even higher) - rather than new specs doing the new buying?

    Just once I'd like to see price supported when the "Banks" are heavy short. Andy M always says there is physical support but it always seems to disappear when the manufactured down push is instituted.

    Jun 25, 2016 - 1:36pm

    Just warming up for the morning.

    I can see I need more coffee anyway.

    indiana rod
    Jun 25, 2016 - 2:08pm


    The rub comes in when. at delivery time the long has to sell because he never intended to take delivery.

    The long that stands for delivery has to put up the full amount of the contract. Even then the long can be forced to cash settle, not take delivery.

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