JPM and Goldman building big positions in physical gold and silver – Butler

The following article has been written for the Sharps Pixley website but as this is down temporarily am posting it here.  It will appear on the Sharps Pixley site when that is up and running again.

Sharps Pixley site is now up and running again and this post now appears there too.

Precious metals specialist, Ted Butler, is nothing but forthright about his views on the big investment banks, notably JP Morgan as top of his list of the ‘baddest dudes’ in the sector.  To this he has added the financial sector’s other frequently recognised ‘bad dude’ – Goldman Sachs – accusing them both of playing the markets in such volumes that they totally dominate them and frequently calling them out in what he describes as ‘criminal’ manipulation’ of these markets.  Obviously the regulators disagree, or just turn a blind eye. And, in any case as we have pointed out before if any of the mega investment banks are called out on their activities and subsequently fined for, at the very least bending the rules, the size of the fines, even though they may be millions of dollars, are tiny compared with the money made and probably just considered a normal cost of doing business.  It would probably take senior executive jail time to have any impact and, with the establishment (the swamp) protecting its own that would seem unlikely.

Ted’s latest accusation is that he now has conclusive proof that those two entities, which he sees as the ‘baddest dudes in the hood’ are taking 80% of all COMEX silver and gold deliveries for the first time in nine months in the case of one and much longer than that in the case of the other.  That has made him really sit up and take notice.

In Ted’s view there is only one basic reason for why anyone would buy and take delivery of anything.  As he says that is ‘that they think it will go up in value. No one buys and takes delivery (paying full cash value) for an asset expected to decline. That Goldman Sachs is now taking delivery of COMEX gold and silver, second only to JPMorgan, should send strong signals to anyone interested in these metals as an affirmation to do likewise.’

Ted goes on to note, as anyone who follows his extensive research will know, that JP Morgan has held the largest paper short position in the silver market for over ten years even though it also holds probably the world’s largest accumulation of silver bullion having been building this up for the past six and a half years..  In Ted’s view ‘the bank is taking advantage of the low prices its paper short position helped create to buy up physical silver at a bargain price. Until it started covering in this week’s COT report, JPM held its largest paper short position in years, only to turn around and add another 10 million physical ounces to its hoard this week.’

The recent gold price declines (and similar in the other precious metals)  bear all the hallmarks of being engineered through futures markets notional transactions and Ed Steer (www.edsteergoldsilver.com – note revised web address) comments in his today’s newsletter that JP Morgan and Goldman Sachs again appear to have been the main buyers of physical metal on the dip for their own in-house and proprietary trading accounts.  As Ed puts it in his newsletter: ‘It’s been a really weird delivery month so far.  There have been 5,995 gold contracts issued and stopped, plus 5,147 silver contracts.  HSBC USA has been the big short/issuer in both metals — and JPMorgan and Goldman Sachs have been gorging themselves’ –  at least in the gold accumulations.  In silver, the other big buyer has been Scotiabank which Ted Butler tars with much the same brush as JP Morgan in terms of silver market manipulation.

If Ted and Ed are correct then it looks like JP Morgan and Goldman Sachs could be positioning themselves for a big turnaround in the precious metals markets led, of course, by gold.  When gold rises the others in the precious metals complex tend to do so too.  But here again it is a question of timing.  Maybe the New Year could be looking good in this respect.  January tends to be a positive month for precious metals.  It will thus be interesting to see how Goldman’s commodities analysts – normally bearish on gold in particular – will rate precious metals prospects at the year-end and at the beginning of 2018.

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Will the COMEX need a golden rescue?

This commentary from Ed Steer* – with a couple of opening paragraphs from Ted Butler – looks at some hugely anomalous transactions on the U.S. gold and silver markets over the past week which appear to breach regulations – indeed Ted describes them as illegal.  As Ed points out in his introductory paragraphs, before he gets to his own opinions on what may happen now in his Wrap-up: “Although the Commercial net short position in gold decreased by the expected smallish amount, there was a tiny increase in silver once again.  But under the surface in the headline gold number, was an absolutely stunning change that both Ted and I were shocked to see.  But it proves Ted’s premise that one of the smaller traders in the Big 8 category most likely had its financial back against the wall — and had to get bailed out in whole or in part by one or more the Big 4 traders.”

Ed goes on: “Even though the Commercial net short position declined by 6,454 contracts during the reporting week, Ted said that the Big 4 traders actually increased their net short position by about 8,400 contracts — plus the raptors, the commercial traders other than the Big 8, also increased their short position by around 1,800 contracts.  But the biggest change was in the ‘5 through 8’ category, as they reduced their net short position by about 16,700 contracts.  My immediate reaction when I saw that number was that one of the Big 4 — most likely JPMorgan, and I’m speculating here — had to come to the rescue of one of the ‘5 through 8’ traders that was about to go bust because of margin calls.  And rather than have this trading firm cover their short position in the open market, which would have driven gold [and most likely silver] prices to the moon and the stars, and bankrupted everyone else in the process — a Good Samaritan stepped in to prevent that from happening, saving themselves, plus everyone else in the process — at least for the moment.

“If this is what actually happened, then it has all the hallmarks of another Bear Stearns moment, when JPMorgan was forced to take over that firm back in early 2008 when the same thing was about to happen there.”  

Now the shenanigans which take place on COMEX where these kinds of paper gold transactions seem to be the norm rather than the exception – although perhaps not to the kind of extent noted above – tend to fall outside my own zone of understanding as far as relevance to overall gold and silver prices are concerned – apart from having an obvious impact in terms of setting (controlling) U.S. precious metals prices, which tend to be followed by the rest of the world’s markets, but Ted Butler has been following this activity for many years in meticulous detail and has no compunction in calling some of these activities, and their perpetrators as technically criminal in effect, but the authorities trusted with overseeing these markets seem to turna a continual blind eye to them.

In his introductory paragraphs, which incorporate charts, mostly from Nick Laird’s sharelynx.com site, Ed also notes: “The changes in this week’s Commitment of Traders Report are certainly unprecedented — and hint at desperation on part of the commercial traders, especially the smaller ones that don’t have deep pockets like JPMorgan, Citigroup, or maybe Canada’s Scotiabank.  Firms like Morgan Stanley would certainly be a member of the Big 8 — and even Goldman Sachs could even be included in this group now.  These would be five members of the Big 8 — and whoever the three remaining firms that are part of the Big 8, wouldn’t have access to unlimited funding like the Big 5 I just mentioned.  Of course, with the probable rescue of one of the ‘5 through 8’ traders, all that does is elevate one of Ted’s raptors, the commercial traders other than the Big 8, into the Big 8 category by default — and as Ted correctly mentioned, you have to wonder about their financial ability to meet margins calls along with some of the other raptors that are close to Big 8 status as well.

“One thing is for sure — there’s big, big trouble brewing in River City at the moment — and how this is resolved remains to be seen”

Ed’s full introductory comment and conclusions are available on goldseek.com – click here to read

Conclusions

Ed’s wrap-up on what has been happening – with the intro paragraphs from Ted Butler now follows:

I find myself thinking about the circumstances of how the big 5 thru 8 gold short which bought back its short position and came to be replaced by JPMorgan or another big short trader. This doesn’t sound at all like a fully open market transaction in which a big short moved to buy back in a transparent manner and accepting free market sell orders to close out the short position. Instead, it reeks as an arranged trade (highly illegal) in which the vast majority of market participants and observers knew nothing about as it was transacted. The price action during the reporting week it which it occurred was highly orderly and no hint was given that a big short fish was in trouble. My guess is that the big gold short which covered came into financial distress weeks ago and was carried by the exchange until the position rearrangement was finalized.

As such, someone had to know of it – certainly the short trader which bought back and JPMorgan or whoever else added gold shorts. The CME clearing house had to know and probably arranged the illegal transaction. While I am convinced few other traders were aware of the gold short in trouble, I am not sure if the CFTC was in on this or is as out to lunch as some (including me) profess. My hunch is that the CFTC was told after the gold short got in trouble but before the transaction was effected. In any event, this was an arranged transaction in keeping with a long COMEX tradition of arranged transactions (such as the Bear Stearns takeover and the May 1, 2011 silver price massacre). The only questions are was it enough and what now?

Even though I think I have a clear reading on what took place that doesn’t extend to blueprinting short term price action. As I’ve maintained all along, I’ve narrowed it down to either we go straight up from here or experience one last hard shake to the downside before lifting off for good. This week’s extraordinary big 8 gold repositioning just accentuates either outcome. Should the commercials lose control, prices will surge and it is hard to understate all the unintended consequences. I’m not an end of the world guy, but a genuine commercial failure could rock the world.Silver analyst Ted Butler: 30 July 2016

It was obvious that the powers-that-be were all over the precious metal prices during the COMEX trading session on Friday, because if they’d been allowed to trade freely, the moon and the stars would have been the limit as far as closing prices were concerned.  Then the resulting margin calls to the Big 8 traders alone would have certainly buried more of them and, as I said in my discussion on the COT Report, it appears that one of the smaller trader has already been bailed out.

Ted mentioned on the phone yesterday that the current paper loses for the Big 8 now total at least $3 billion dollars as of the close of trading on Friday — and those loses do not include the realized gains that they made earlier this year.  He says it’s likely more than that, but wasn’t able to compute it more precisely during the time we spent on the phone yesterday, which was considerable.  These are huge loses, but there’s now no question that for some of the small traders in the Big 8 category, plus most likely for some of the raptors [the commercial traders other than the Big 8] the writing is on the wall.

I’d guess that a resolution to all this is very near — and there are only three end-game scenarios that I can think of at this time of morning — and they are all ugly — and are as follows: 1] with the approval of the CFTC and SEC, both organizations that most certainly know what’s going on at the moment, we’ll get another JPMorgan-led drive-by shooting like we had starting on May 1, 2011 in silver.  This time it would be in gold as well, plus platinum most likely.  But as to how successful that might be in the current financial and monetary environment remains to be seen. 2] Another one or more small Commercial traders rush to cover — and we have a melt-up in precious metal prices, plus a melt-down in the U.S. banking system as the margin calls bankrupt ever larger players up the precious metal food chain as the price management scheme unwinds around the world, or 3]  The CFTC is forced to close the COMEX in order save JPMorgan et al.  That would save all the short players, but suddenly the precious metals would be selling on the spot market, with no futures and options attached to them.  I can’t even begin to comprehend what would happen to the financial market on a world-wide basis if that came to pass.

Ted was of the opinion that the possibility existed that these unprecedented gold deliveries we’ve been watching unfold over the last two or three months could be part and parcel of what’s happening now.  I couldn’t agree more.

The other thing we talked about — and I alluded to in my discussion on the COT Report earlier, was the fact that with such huge volume and open interest, there could be all kinds of things going on under the hood in the COMEX futures market that can’t be seen in the COT Report, or at least that are not that obvious.  But in the ‘obvious’ category — and as a ‘for instance’ the huge increase in the long position in silver in the Managed Money category this week.  Who was that — and what was it all about?

There are many more questions than answers, but JPMorgan et al have now painted themselves into such a small corner that there doesn’t appear to be any more wiggle room left — and the first sign of big trouble was the apparent rescue of one of the Big 8 traders in the COMEX futures market in gold.

A cornered beast is a dangerous animal — and those caught in the price management scheme as it breaths its last, will do just about anything, legal or otherwise, to save themselves and the system that nurtures them.  So this bears watching carefully in the days and weeks ahead, if in fact we actually have that much time left.

‘Push’ really has become ‘shove’ at this juncture — and I must admit that I’m on ‘Red Alert’ from this point onward.

How did it come to this?

*Ed Steer publishes a 5 day a week newsletter on gold and precious metals and on geopolitics and geo-economics which he finds relevant to the precious metals markets.  It is a subscription publication but gives insights into what is going on in the sector seldom covered by mainstream media.  To learn more click click on edsteergoldandsilver.com 

Ted Butler is perhaps the doyen of all commentators primarily covering the silver markets, but also touching on gold given its particular relevance to the path taken by its less costly sibling.  Again he publishes a subscription newsletter.  To learn more click on www.butlerresearch.com

JP Morgan joins the ‘Usual Suspects’ in LBMA gold benchmarking process

The ICE Benchmark Administration website now shows that JP Morgan Chase has become the seventh Direct Participant in setting the twice daily LBMA Gold Price benchmarks – a selection which will be indeed inflame those gold price manipulation-believers who reckon that JP Morgan and Goldman Sachs are behind almost any irregularity in global financial markets.

Lawrie Williams

If any selection could be seen as inflaming the gold price manipulation-believers, it would be the addition of JP Morgan as one of the new participants in the LBMA Gold Price benchmarking process.  And guess what?  ICE Benchmarking Administration (IBA), which runs the new benchmarking process, confirms that indeed JP Morgan has joined the Direct Participants in the new benchmarking process – not by any announcement, but just by the inclusion today of JP Morgan Chase on its website as being among the members of the panel which now sets the twice daily London benchmark gold price to replace the old Gold Fix.

So the original four members of the old London Gold Fixing panel – Barclays, HSBC, Scotiabank and SocGen – have now been joined by Goldman Sachs, JP Morgan and UBS as the Direct Particpants which now set the new gold price benchmarks.

Before the new panel of Direct Particpants was finalised it had been widely believed that one or more of the Chinese banks – Bank of China, ICBC and China Construction Bank – would be among the new members – a speculation which was never squashed by the LBMA – and right up to the first application of the new electronic benchmarking process a week ago many believed that indeed one or more of these three banks would indeed be involved in the process. It was not to be, although all of them would appear to meet the qualification terms for Direct Participants (Ordinary Member accreditation from the LBMA; Individuals with appropriate experience, skill and training; Organisational and governance arrangements; Appropriate credit lines, or equivalent arrangements; Clearing/settlement arrangements with existing Direct Participants) and it had been announced that the three Chinese banks had indeed expressed interest in being among the first Direct Participants.  Why none have become involved so far has not been made apparent.

If the reason for replacing the almost century old gold price benchmarking process had been brought about because it was beginning to be seen as being potentially open to price manipulation by the participants, something which is totally unproven and has always been hotly denied, then the selection of the banks which had formerly been involved as partipants in the new process, plus Goldman, JP Morgan and UBS, seems to have just been a red rag to those gold bulls who believe the gold market is indeed manipulated.  The new LBMA Gold Price participants are viewed by this price manipulation-believing sector as being those who are already probably most involved in finacial manipulation of the system.  They will now reckon that this just confirms their belief.  JP Morgan and Goldman Sachs in particular are very much the betes noires of the manipulation believers.  And they will also see the apparent freezing out of the Chinese banks as just confirming their viewpoint.

Thus one suspects the manipulation-believers will remain up at arms over the new London gold benchmarking system until the number of Direct Participants is broadened to include some members who are seen as being outside the current western financial elite.  And even if this happens, they will still undoubtedly find other points to criticise.

 

Silver in 2015 – the gambler’s precious metal

Silver in 2015 – the gambler’s precious metal

Lawrence Williams

Not for nothing is silver referred to as the ‘Devil’s metal’ or ‘gold on steroids’.  Silver investors during 2014 have seen their holdings dwindle in value – it started the year at close to $20 an ounce and looks like ending it near $16 – a fall of around 20% 0n the year while gold’s year end figure looks likely to be much closer to where it started the year, perhaps down around 2.5%.  During the year silver reached over $21 in July but the metal’s performance since then has been, to say the least, dismal, falling as low as $15.28 in early November.  (Prices are London silver prices as recorded by the London Bullion Market Association).

But there are some major anomalies in silver’s price performance over the year in that sales of American Eagle silver coins hit a new record in 2014, while reports of Chinese and Indian consumption have suggested that investment demand is at very high levels in both the East and the West which flies in the face of the price performance.  There is the suggestion too that silver supply will be in a fairly substantial deficit in 2015 (assuming the largely unpredictable investment offtake remains strong), but still the price falters.

In truth silver’s fundamentals look pretty strong to this observer BUT in today’s precious metals markets real fundamentals seem to have little impact on prices which are increasingly being driven by trading on the futures markets.

Indeed well-known, and well-respected, silver analyst Ted Butler has floated an interesting theory on why silver demand (*for American Eagles) is so high while the price continues to languish and fall.  He suggests that one of the big bullion banks, JP Morgan, which dominates the shorts in COMEX silver, is driving down the price using the futures markets while buying up physical metal against the day when it will change tack and let the price of physical metal rise and make enormous trading gains given that effectively silver will be in short supply.  This may be a stretch too far given that JPM would have been buying the silver at prices all the way down from $20 plus, but there is certainly the possibility that financial institutions have been buying physical metal against the day that futures and physical markets turn strongly positive.  The potential profits could be enormous if there is a strong market turnaround, which many feel is a probability in the short to medium term.

But, it will still take an upwards turn in the gold price to trigger a big advance in silver.  At the moment gold is remaining relatively depressed – at least in US dollar terms – due to the strong performance of the dollar against most other currencies.  This has been exacerbated by the overall strength of the stock markets, buoyed up by talk of economic recovery in the US, which makes gold seem less attractive to the investment public and the institutions.

Stock markets have been boosted by the unprecedented amount of liquidity being pumped into the markets to try and ward off recession through ‘Quantitative Easing’ type programmes.  While the U.S. Fed has effectively ended its most recent easing programme it is still obviously nervous that the markets will stutter and dive once the effects of ending the easing programme begin to impact and consequently is not yet prepared to allow interest rates from their exceedingly low levels in case interest rate rises really spook the markets.  The Fed is aware that the stock market is precarious and may have risen too far too fast (i.e. in a potential bubble situation) and is playing an exceedingly cautious game so as not to rock the boat.  If markets do start to fall they could drop dramatically – the current six year bull market may well have run its course and bull markets usually end  with some very sharp falls indeed.

An end to the bull market is, of course, inevitable but picking exactly when is the real dilemma facing the investor.  If you hang on for the top it may well pass before you realise it and once the market turns round then there tends to be substantial selling pressure as big investors take profits, and this tends to generate the steep downwards spiral in prices which usually signifies the end of a major bull market.  If there is a feeling that the bull market is indeed close to its top this could precipitate a move into gold as an asset class providing some investment insurance – and a move into gold, and a consequent rise in the gold price, could be all that silver needs to take off.  And if silver does start to take off we could see some very sharp gains indeed.  Even a rise back to $20 would be a 25% increase from current levels.  Some may well see that as a gamble worth taking.

Silver bulls – forever optimists – are, of course, looking for a return to its 2011 high of close to $50, and more.  Indeed many look for a return to what they see as the historic gold:silver ratio (GSR) of 16:1 (which would mean a silver price of $75 at a $1200 gold price) but this writer thinks that this GSR level is unlikely, perhaps ever again despite the various arguments supporting this proposition.  But should gold start to move up a return to a GSR of 50 or a little lower would definitely be on the cards as the more volatile silver price gains traction.

So what are the prospects for this kind of upwards performance in 2015?  Downside in the gold price over the year is generally seen as somewhat limited, although a further fall before a major recovery, cannot be ruled out.  This suggests that silver may well provide an interesting gamble (and a gamble it would be) on a gold price rise during 2015.  The downside in silver is probably limited, although some observers still see a drop to around $13 if gold doesn’t pick up, but the upside potential if gold does improve in price is very positive.