Craig Hemke Just Nailed It On The Manipulative Effects of Infinitely Deep Pockets

 

Turd brought his A-Game to report it’s “Same As It Ever Was”

by Craig Hemke of TF Metals Report

While we’ve all noticed some of the extreme and historic changes to the Commitment of Traders report over the past two months, the once/month Bank Participation Report belies the fact that nothing has yet changed. Whenever price rallies, The Banks are still quick to take the short side of the trade.

First, we should probably begin this post with the usual background and disclaimer:

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).
  • Always keep in mind that 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: http://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…and that’s what we’ll do again today.

OK, with that said, let’s take a look at the latest report that was surveyed on Tuesday, August 1 and released late last Friday, August 4.

If you’ve followed along for any length of time, then you know how The Banks make a market on the Comex. Once upon a time, The Banks operated as agents for the miners. The mining companies would hedge and/or sell forward their future production and would do so by having the agent Banks issue contracts on the Comex. The miner, through The Bank, would be on the short side of the trade and a speculator would bet on the long side. This is largely how the commodity markets functioned since they were first created.

However, over the past two decades, the amount of mining company hedging has declined to nearly zero. The most recent estimate we’ve seen showed only a total of about 270 mts of production in 2016 (http://www.reuters.com/article/us-gold-hedging-idUSKCN0ZS02B). Even if ALL of this hedging occurred on the Comex, this would only represent a need for about 87,000 contracts of open interest. However, we all know that total Comex gold open interest routinely averages in the 450,000-500,000 contract range. Thus the difference between 87,000 and current open interest is simple Bank speculation.

Again, we can’t attribute EVERYTHING to the Comex and surely some of the stated Bank Comex positions are offset with other positions in London and on the opaque OTC “markets”. However, when we consider the history of the Bank Participation Report data, a clear trend emerges and its one that, unfortunately, is quite clearly still present today.

I suppose that the best ting we can do is give you the data. In doing so, you should be quickly able to discern for yourself how this works:

1/5/16   @$1078                          GROSS LONG               GROSS SHORT                  TOTAL NET

US Banks                                                 6,387                                  49,447                                  -43,060

Non-US Banks                                      35,499                                 37,698                                    -2,199

TOTAL                                                                                                                                                -45,259

2/2/16    @$1127                         GROSS LONG               GROSS SHORT                  TOTAL NET

US Banks                                                  9,136                                  54,150                                   -45,014

Non-US Banks                                        22,313                                42,663                                   -20,350

TOTAL                                                                                                                                                 -65,364

3/1/16   @$1231                         GROSS LONG               GROSS SHORT                  TOTAL NET

US Banks                                                 8,183                                   81,050                                  -72,867

Non-US Banks                                       20,514                                  72,777                                  -52,263

TOTAL                                                                                                                                                -125,130

4/5/16   @$1230                          GROSS LONG               GROSS SHORT                  TOTAL NET

US Banks                                                 11,099                                 88,208                                  -77,109

Non-US Banks                                       22,788                                 93,900                                  -71,112

TOTAL                                                                                                                                                -148,221

5/3/16    @$1292                         GROSS LONG               GROSS SHORT                  TOTAL NET

US Banks                                                 10,791                                 118,437                                 -107,646

Non-US Banks                                        21,905                                109,511                                   -87,606

TOTAL                                                                                                                                                 -195,262

6/7/16   @$1247                          GROSS LONG               GROSS SHORT                  TOTAL NET

US Banks                                                  12,704                                73,928                                   -61,224

Non-US Banks                                        21,004                                93,076                                   -72,072

TOTAL                                                                                                                                                 -133,296

7/5/16   @$1359                          GROSS LONG               GROSS SHORT                  TOTAL NET

US Banks                                                  9,314                                102,684                                   -93,370

Non-US Banks                                        14,622                               113,086                                   -98,464

TOTAL                                                                                                                                                 -191,834

As price fell through the second half of 2016, Speculators dumped longs and The Banks used this selling to buy back and cover their short positions. By January of 2017, the BPR looked like this:

1/3/17   @$1162                          GROSS LONG               GROSS SHORT                  TOTAL NET

US Banks                                                  11,393                                60,352                                   -48,959

Non-US Banks                                        24,501                                49,264                                   -24,763

TOTAL                                                                                                                                                  -73,722

As you know, price has rallied in 2017 is a sort of 3-steps-forward, 2-steps-back pattern. As you’d expect, the Bank positions reported via the BPR has ebbed and flowed, too. And by June, with price near its 2017 high (thus far), here’s where the BPR stood:

6/6/17   @$1297                          GROSS LONG               GROSS SHORT                  TOTAL NET

US Banks                                                   8,500                                108,153                                   -99,653

Non-US Banks                                        20,128                                 96,962                                    -76,834

TOTAL                                                                                                                                                 -176,487

As you can see, The Banks were playing the same game in 2017 and they played in 2016, taking the short side of the trade versus the hedge fund and other Spec longs. In what should then come as no surprise at all, price was hammered lower over the course of the next five weeks, falling from $1297 on BPR survey date June 6 to $1215 on BPR survey date July 11.

At this point, the July BPR data was surveyed from the Commitment of Traders data taken that same afternoon. The CoT data was astounding, showing some of the lowest Speculator and Commercial positions since late 2015. It looked like this:

And the July BPR revealed this:

7/11/17   @$1215                          GROSS LONG               GROSS SHORT                  TOTAL NET

US Banks                                                  14,013                                78,063                                   -64,050

Non-US Banks                                         26,675                                67,373                                   -40,698

TOTAL                                                                                                                                                 -104,748

Since the CoT and BPR had changed so dramatically in a month, there was hope across the gold blogosphere that maybe, just maybe:

  • The Banks were moving to quickly cover shorts and get out of the manipulation business
  • The Banks knew that the game was nearly over and they needed to act fast
  • The Banks were fearful of Andrew Maguire’s alleged 250 mt order and were desperate to reduce their potential short liability
  • And so on and so forth

Instead, while price has rallied form those early July lows, the latest BPR reveals that nothing has changed at all. The Banks aren’t afraid of anything. There’s no banker blood in the streets. Instead, the data shows that they’re still just playing the same old, tired game.

8/1/17   @$1270                          GROSS LONG               GROSS SHORT                  TOTAL NET

US Banks                                                  9,767                                103,249                                   -93,482

Non-US Banks                                        20,357                                81,733                                    -61,376

TOTAL                                                                                                                                                 -154,858

So, The Banks used the latest 4.5% rally in price to increase their summary NET short position by nearly 50%. And again, this is not a sudden rush of mining companies beating down the Banker’s doors in a desperate attempt to sell forward their remaining 2017 production. Instead, The Banks are simply once again playing their (profitable) game of supplying the paper derivatives to The Specs while using their infinitely deep pockets to wait them out until price can once again be rigged lower. Again, unlike what some had so fervently hoped back in July, nothing has changed. The Banks haven’t changed course and they certainly aren’t taking any preemptive measures against a sudden price “reset”.

In the end, what does this mean? Business as usual, I guess. We’ll continue to monitor the Bank and “Commercial” positions and look for buying/selling signals based upon historical references. And in the meantime, we’ll have no illusions about who is really in charge of these fraudulent and manipulated paper metal “markets”.

TF

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