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Wednesday, June 5, 2013

JP Morgan's Gold Vault is Just About Empty (Updated)

Looks like JP Morgan's customers want their gold back.

As I mentioned in Something's About to Break, bullion banks like JP Morgan do not have enough physical gold to meet their paper obligations. Going short GLD has two purposes. The first is to repress the price of gold to make it a less desirable place for investors. The second, when they flood the market with sells, is to push the price of GLD down to encourage investors to sell. This makes physical gold available when the ETF trust company doesn't need to hold as much in their vaults to back the remaining shares. GLD is, after all, an open end trust. They can create or destroy shares as demand is needed much like a traditional mutual fund.

Below you will clearly see that JPM's gold vault holdings are declining on the COMEX where contracts trade in the US. But if you look at the difference between registered and eligible, you'll see  that its eligible is declining fast. But before we get too far, let me explain the difference.

The following is from Silverdoctors. Just replace the word silver with gold:
  The Eligible category means that the silver meets the exchange requirements.  Exchange requirements include purity, size (eligible silver bars must weigh within 10% plus or minus of 1000 ounces), and also must be from (stamped with) an exchange approved refiner.
Eligible silver essentially means that the silver is stored in COMEX warehouses, and conforms to exchange standards.  It is being stored in the COMEX warehouse for a private party, but it is NOT available for delivery to contracts.
For example, Warren Buffet decides to store 30 million ounces of silver owned by Berkshire Hathaway (he has no intention of making the silver available for sale at current prices) in a COMEX vault rather than his Omaha basement, he could do so, and the silver would be eligible inventory.

Registered silver means that the silver is fully available for delivery to longs who stand for bullion delivery.
Registered silver used to have a paper bearer warrant attached for delivery, but these paper warrants are reportedly being phased out.
To simplify, registered silver is deliverable- or available for delivery to a long standing or demanding bullion delivery.

Eligible silver can become registered, and vice-versa. (i.e. the owner can decide to make his silver available for sale at a certain price)
This is seen almost daily in the adjustments section of the COMEX inventory data reports.
In order for eligible silver to become registered, the owner must have an exchange licensed depository (Brink's, The Delaware Depository, HSBC, JPM, or Scotia Mocotta) issue a depository receipt (warrant).
In addition, the bars must total 5,000 ounces (size of 1 contract) plus or minus 6%.

As far as the silver manipulation and the dwindling COMEX silver supplies, registered and Total COMEX inventories have been substantially decreasing over the past few years.   Just in the last few years registered silver has declined from 70 million + ounces to 33 million ounces (touching a low of 25 million oz in July), and Total inventories have declined from 140 million oz + to ~ 100 million oz.  Eligible inventories meanwhile have been increasing.

The most emphasis on COMEX silver inventories is placed on registered, as technically, this is the only silver that is available for delivery to longs.  Theoretically, if 34 million oz worth of longs stood for delivery in September, the COMEX would default, as only 33 million ounces of registered silver remain.
In actuality however, I believe that the TOTAL silver inventories are what matters.  Eligible silver supplies meet exchange requirements- they are simply not currently offered for sale by the owners.  Clearly this silver would become available at a certain price.   I also believe it likely that the owners would likely be strong-armed or forced into converting their eligible supplies into registered should things become desperate for the cartel.

Now, getting back to JPM's problems. It is suspected by many that bullion banks have been "borrowing" their client's eligible gold and silver to meet contracts they've written on gold they may not have. You may recall previous posts I've written about banks writing contracts on metals in a ratio of 100 to 1 of what they really have. Meaning that if 100 people decide they want their paper claims on gold they may be surprised to find only one person can actually have it. The other 99 are just paper promises. This is precisely what happened at ABM Amro when they told the certificate owners of gold that they could no longer have their own gold delivered to them! In essence they defaulted.

This may have been the reason for the April gold smash earlier this year. A bullion bank may not have had the physical available for client delivery and orchestrated (illegally manipulated) a crash which would scare investors out of GLD and resulting in some physical gold being made available when the trustee can suddenly release its surplus as the ETF's shares are reduced.

But, unfortunately for the bullion banks, that smash in the paper gold price created a global rush for physical gold at the new lower price.

I realize this post may seem a little rambling. But with all the above in mind pleas read today's post from Zerohedge:
 
Beginning on May 13, when JPM's commercial gold holdings tumbled to an all time low of 137,377 ounces, the firm's daily Comex updates became erratic with daily reallocations out of its Registered holdings into Eligible. Over the next three weeks, some 209K ounces had their warrants detached, and shifted into customer account, all the while the total number of ounces held in the JPM gold warehouse at 1 Chase Manhattan Plaza, remained flat at 817,167. Then two days ago the first withdrawal in nearly one month took place, with 13K ounces pulled out of JPM's Eligible holdings. Moments ago, the daily Comex update showed that yet another 15.4K ounces were withdrawn out of JPM, following the latest gold withdrawal, offset by a 49K ounces reallocation. This however is still short of the roughly 70K ounces due for delivery. Long story short, as of close of activity on June 3, the total gold held by the JPMorgan depository is now the lowest it has ever been at just 788,786 ounces and once again falling fast.

Then again, as many have noticed, the addition of an peculiar footnote to the daily Comex report which states the following:
The information in this report is taken from sources believed to be reliable; however,
the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness.
This report is produced for information purposes only.
means that it is quite possible that all of the above numbers are just that, and that in reality JPM (and others) are representing whatever they wish. It is, however, odd that the CME decided to add this disclaimer only now.

So what does it all mean? Well the bullion banks could very well orchestrate another paper gold smash, but they already know from last time that this will result in higher global demand for physical. Instead, they may very well get on board on the long side and allow the gold price to rise. There are already signs that they have reversed their record short positions (betting on falling prices) and are preparing to go long (betting on higher prices). TF Metals explains this very well. It appears for the moment the next big move in gold is likely higher.

Update 6/6/13 11:56PM

Zerohedge reports things are getting worse for JP Morgan:

 Those tens of thousands of outstanding delivery requests against JPM are finally starting to make their way through the pipeline: following the withdrawal of 28,380 ounces of gold after nearly one month of radiosilence out of the vault located below 1 CMP, today the CME reported that another 21k troy ounces of eligible gold were withdrawn from the bank (coupled with the reallocation of another 8.8K registered into eligible), taking the total to a fresh record low of 767,752 ounces.

In the meantime the delivery notices keep climbing, and in the month of June, JPM accounts for over 80% of all delivery activity:

Of course, with disclaimers such as this from the Comex...
The information in this report is taken from sources believed to be reliable; however,
the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness.
This report is produced for information purposes only.
... all bets are off






2 comments:

  1. Thanks for sharing your opinion,this is such a useful information.
    comex silver | Comex Bullions

    ReplyDelete
  2. Comex reportThis report is produced for information purposes only." - disclaimer now posted on the Comex gold and silver daily warehouse stock report.

    ReplyDelete