Onward Toward Bullion Bank Collapse - UPDATED

202
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).

GIVE. ME. A. BREAK.

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.

    TF

    -----------------------------------------------------------------------------------------------------------------------------------------------------

    <ORIGINAL POST WRITTEN SATURDAY, JUNE 25>

    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?

    OR

    • 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.

    TF

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    About the Author

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      202 Comments

      Refresh
    simjojim
    Jul 6, 2016 - 9:09am

    @SS121

    You are correct, if the "bad guys" have unlimited ability to drive the price down, then why aren't the "bad guys" out there in force continuing that effort? Why is Gold at 1370? It should be at 1180 right?

    My own opinion is that more and more people are taking delivery/physical. One more thing this pixel chart exposes is the price in one's own country. I'm having to buy Gold in my country using the current USD/AUD rate. Now Gold right now is at an all time high, has been for 1 or 2 days now. Aussie rates will be cut on the first Tuesday next month, so Gold in Aussie is a good bet, I guess a race to the bottom for Fiat currencies is going to have many different leaders but in the end Gold will be standing.

    James CrightonPining 4 the fjords
    Jul 6, 2016 - 12:56am

    Indeed Pining ....10:37pm post

    .... and that is why we are Turdites - because he is a man of his convictions - not afraid to voice his opinion, even if (occasionally) he may not be right. AND, most importantly, he admits his (occasional) errors openly.

    Good man, our Turd ..... he won't be cowed by trolls and detractors.

    jc

    Jul 5, 2016 - 10:54pm

    whoops!

    Fat finger. Need a job at JPM!

    Jul 5, 2016 - 10:37pm

    Mr. Hemke, aka Turd Ferguson:

    There are a great many "analysts" out there who have their own hook- Elliot Wave ala Avi Gilburt, the 'former insider giving you insight' thing ala Jim Rickards, the 'tasteless fat man bluffing his way through life" ala Barry Ritholtz... Literally thousands of schticks, most trying very very hard to dazzle you with bullshit and subtly hiding the fact they they are mostly striving not to say anything on the record that might be held against them at a later date. Which makes them weak tea, and not especially interesting or valuable. Then there's our boy Craig.

    He knows damn well that this article makes him an easy target for the 'Lets mock the gold-tards' crowd, who cannot wait to toss around dismissive rhetoric and nasty jibes, and do not care about facts or underlying rationale when there are cheap points to be scored. He understands perfectly well that it opens him to easy ridicule of the most simplistic and knee-jerk kind. He knew before he clicked "post" that this article hangs a target on his chest. But he posts it anyway.

    Why? Why open ones' self to those drive-by hit jobs and the Monday morning quarterbacking by third rate hacks and cowards? Why not easily avoid the snark sharks and do as the Ritholz's and Trader Dan's' of the world- predict nothing of consequence, so as to guarantee no critique, thus preserving your ego and public bluster?

    Because he has the courage of his convictions, and unlike those sniveling cowards he has the balls to plant his flag. Unlike 99% of the others, he doesn't take the easy road. When he thinks "A" is going to happen, he tells you, and damn the consequences.

    This... THIS Is why I am still here, utterly certain I am in the right place, five years on. A very few of the thousands of other analysts might... might... have the knowledge and the wit to see something big, something truly significant in the offing. But this man would, AND would have the balls to tell you it was coming. They wouldn't. And at some point, I think that will make all the difference.

    Nice post

    DickB
    Jul 5, 2016 - 5:13pm

    Faux ferd?

    Is this a ferd?

    streber
    Jul 5, 2016 - 4:35pm

    Gann Global Financial

    paraphrase:

    Gold will be $1375 in 3rd week of NOV.

    This is a guess based on historical patterns of the past. Throw in a fudge factor for more accuracy (lol). He's also saying the powerful run in gold stocks & now the silver surge augers for high & fast bias over past patterns, i.e.- this next leg is going to be a barn burner.

    Markedtofuture
    Jul 5, 2016 - 4:32pm

    Fair value of gold June 23rd, 2016 was a little over $5,035

    IT IS EASY TO CALCULATE THE FAIR MARKET VALUE OF GOLD - Avery Goodman

    snippets from article...

    There are many people who allege that, because gold does not pay interest or dividends, it cannot be accurately valued, like a stock or bond. That is not true. It is actually easier to calculate the fair market dollar value of gold than to value any other asset. We simply need to step back in time in order to find our answer, and then employ some math

    As you can see, the fair value of gold, on June 23rd, 2016 was a little over $5,035. Why then, is gold now selling for only $1,347 per troy ounce?

    https://averybgoodman.com/myblog/2016/07/05/it-is-easy-to-calculate-the-fair-market-value-of-gold/

    Avery Goodman

    Avery B. Goodman is a licensed attorney concentrating in securities law related cases. He holds a B.A. from Emory University, where he concentrated on history and economics. He also holds a Juris Doctorate degree from the University of California at Los Angeles Law School and is a member of the Bar, licensed to practice law in several jurisdictions.

    Mr. Goodman serves on the roster of neutral arbitrators of the National Futures Association (NFA) and the Financial Industry Regulatory Authority (FINRA). His career has consisted not only of prosecuting cases on behalf of clients, but also in sitting in judgment on the cases involving others, and making important decisions on intra-industry and customer disputes.

    An independent investor for decades, Mr. Goodman has observed that markets are being subjected to frighteningly high levels of disinformation. Investors desperately need to hear logic, reason and common sense. For that reason, he is now sharing thoughts with the community.

    Markedtofuture
    Jun 27, 2016 - 8:19pm

    Brussels Proposes Ending Any Right to Vote to Exit EU

    Posted Jun 27, 2016 by Martin Armstrong

    Sources are talking about desperate times in Brussels. The reaction in Brussels is never reform, but more of the draconian measures. A nine-page report exists where the leaders of Germany, France and Italy met in Berlin for BREXIT crisis talks. The solution? They want to shut down all democratic possibility of disagreement knowing these leaders are now below 20% approval ratings and facing 8 countries who may follow BREXIT with their own referendum.

    The new blueprint is to do away with all individual member states sovereignty directing EU members to now radically surrender the right to have their own army, rule of law, taxation systems, central banks, and effectively transfer all power to Brussels ending everything that once identified European culture – the ultimate state with one size fits all. The Germany people and French people would probably object or revolt over this one.

    https://www.armstrongeconomics.com/international-news/europes-current-ec...

    Visit the FAQ page to learn how to track your last read comment, add images, embed videos, tweets, and animated gifs, and more.

    Jun 27, 2016 - 1:13pm

    Your obligatory margin hikes

    Was just notified of this.

    A 22% hike that goes into effect at today's close. All the better to flush out brand new Spec longs when the time comes.

    https://www.cmegroup.com/notices/clearing/2016/06/Chadv16-248.pdf

    SS121
    Jun 27, 2016 - 1:10pm

    puro oro

    yes, it does appear that those who own the charts manufacture the price data to manage (control) the public. but that's all obvious "plain sight" stuff.

    i was curious as to all the more creative "market" stories and whether or not they connect to the actual price data displayed on the charts. All responses thus far (it's an open question) indicate that an actual price data connection has nothing to do with it.

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