Friday, August 9, 2013

The Bank Run on Gold Continues

JP Morgan especially seems to be scrambling:

Yesterday, it was HSBC. Today, the lucky respondent to JPM's polite gold 'procurement' request, is the second "fullest" New York commercial gold vault: Scotia Mocatta.
As ZH reported previously, following the announcement of an imminent withdrawal of 63.5k ounces of its gold (16% of the total), JPM's vault operations team promptly called around and to its disappointment was only able to procure a tiny 6.4k ounces: not nearly enough to preserve the impression that it is well-stocked. We then said, "None of which changes the fact that in a few days, the inventory in JPM's gold vault will drop to another record low of only 380K ounces and the JPM "rescue" pleas from HSBC and other Comex members will become ever louder and more desperate until one day they may just go straight to voicemail."
Today, as we predicted, the calls into HSBC indeed appear to have gone straight to voicemail (perhaps HSBC did not have any more unencumbered gold to share, perhaps it just didn't want to) which left JPM with just one option: go down the list.

Sure enough, as the just released Comex update shows, JPM was forced to receive a "completely unsolicited" handout of some 20.2K ounces from Scotia Mocatta, the vault best known for being situated under 4 WTC during September 11 (and whose current physical vault can be found conveniently within spitting distance of JFK airport).
However, what is notable today unlike yesterday, is that JPM's pleas seem to be getting more shrill: while yesterday HSBC released eligible inventory, today Scotia was forced to hand over registered gold straight into JPM's eligible pile: this is perhaps the first time we have seen this happen laterally between two vaults, without an intermediate warrant detachment step. Furthermore, with HSBC moving 43.4K oz from Registered to Eligible, we would expect either another major Comex withdrawal in the next few days from HSBC, or this is merely HSBC making room for further gold "requests" by JPM.
Either way, assuming that first the HSBC transfer, and now the Scotia Mocatta gold delivery, aren't entirely unsolicited, how long until someone inquires just why it is that the biggest bank by assets is forced to run around town and beg for whatever gold it can get its hands on?


And for those who missed it, here is yesterday's lateral gold move from HSBC to JPM:

So which bank's gold stash will JPM politely plunder tomorrow having already gone through the two top commercial gold vaults? Find out tomorrow: same time, same place.

Apparently you can only raid the GLD ETF for so long. 33% of the gold holdings the ETF they should have had at the start of the year has been "cashed in". And by that I mean they used paper derivatives to knock down the price of gold, bought hundreds of thousands of GLD ETF shares then redeemed them for physical at a low price allowing them to make the demanded physical deliveries. Only problem was, every time they did this, the Eastern central banks bought massive amounts of their own physical gold at the lower "gifted" price. It becomes ever more difficult to manipulate the price when central banks are buying every available ton of physical gold available.

Finally, the fact that JPM is scrambling for gold seems to indicate that they no longer have easy access to "leased" Western central bank gold. Has the US run out? Or just gotten so low they refuse to "lease" more knowing it will never come back to the vaults again?

Meanwhile: Gold Forward Rates (GoFo) are negative for the first time since the Lehman failure:

Click to enlarge and get a good look at the upper right graph. Also notice in the main graph when GoFo rates went negative on previous occasions in late 1999 and 2001 preceding the market downturns of 00, 01 and 2002.

Zero hedge has more:

What is unclear, is why GOFO rates continue to be negative (and are getting more negative). As we laid out over a month ago, it may be one of many things:
  •     An ETF-induced repricing of paper and physical gold
  •     Ongoing deliverable concerns and/or shortages involving one (JPM) or more Comex gold members.
  •     Liquidations in the paper gold market
  •     A shortage of physical gold for a non-bullion bank market participant
  •     A major fund unwinding a futures pair trade involving at least one gold leasing leg
  •     An ongoing bullion bank failure with or without an associated allocated gold bank "run"
  •     All of the above
One thing we do know that has changed since then, is that JPM's gold bullion holdings have slid to fresh record lows and JPM has been forced to scramble to procure gold from both HSBC and Scotia. Is there anything else going on behind the scenes? Absolutely (coughbundesbankcough), alas as usually happens in cases like this, we will learn the whole story after the fact. That's ok: we have lots of popcorn, and unlike those who rely on the JPM vault for storage purposes, our physical holdings are always at arms length.

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