First, let me caveat with what I always state when analyzing COMEX inventories – or, for that matter, any information emanating from government and/or “quasi-government” agencies (in this case, the CME, which I consider the latter). That is, don’t believe everything you read, as it may be “fudged” to serve those seeking to harm you. After all, it was just three months ago when the COMEX quietly added the below disclaimer to the bottom of its weekly inventory reports…
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.
-The Golden Truth, June 4, 2013
Moreover, one mustn’t cling to long time myths of the predictive value of such reports – such as that “commercials” like JP Morgan are always correct. Admittedly, such data had a VERY high correlation to near-term price movements in the PM bull’s early stages; but as I wrote last year in “THE COT’s NO LONGER MATTER,” such relationships have been tenuous at best for the past five years or so. In fact, one needs to look no further than this year to see what I mean.
Recall October 2012, when gold last traded at $1,775/oz. – whilst the “commercial” short position peaked at 269,000 contracts. Subsequently, the Cartel attacked PAPER PMs with a vengeance – pushing PAPER gold down to a low of $1,180/oz in June 2013; at which point, the “commercial” short position bottomed at just 19,000 contracts. Since then, the commercials have been manically shorting gold again – reaching a net short position of 67,000 contracts as of last week – whilst gold surged from $1,180/oz to $1,430/oz. And by the way, in both cases the supposedly dumb “speculators” were DEAD ON in their trades. Thus, don’t “fear” what the commercials are doing in the short-term; as for a government-backed, FASB-sanctioned Cartel member like JP Morgan, such trading is simply a “loss leader” for what they are doing in the long-term.
And what they are doing in said long-term is decidedly different from the “smoke-screen” suggested by the aforementioned, COMEX-disclaimed “COT data” – per the world’s pre-eminent COMEX expert himself, Ted Butler…
You can’t go from being 75,000 contracts (7.5 million oz) net short to 85,000 contracts (8.5 million oz) net long in a week or a month. You can’t snap your fingers and buy the equivalent of 16 million oz of gold, regardless of whether you have the money to leverage derivatives with a notional value of $25 billion. No, it took JPMorgan nine months to buy 160,000 net COMEX gold futures contracts (16 million oz), at an average monthly rate of around 18,000 contracts (1.8 million oz) from Dec 4th thru Aug 9th.
-Butler Research, August 7, 2013
OK, data is just that – data. That and $0.50 once bought a cup of coffee – or for our oldest readers, five cups of coffee. My point is that what really matters is how much PHYSICAL metal actually exist to back the PAPER contracts; and again, one must caveat all reports emanating from the COMEX – or specifically, its parent the Chicago Mercantile Exchange, or CME. However, my sense is that such data is far more reliable than that of PAPER positions – as clients must confirm deliveries and receipts of PHYSICAL metal. Not to mention, JP Morgan itself admits to plummetinginventories in its own warehouses – validating the information stated in the COMEX reports to be discussed shortly…
Before I go further, let me clarify the COMEX “lingo” regarding inventory classifications. Essentially, there are two types to speak of – eligible and registered. If you consider these terms literally, you will be eternally confused, as “eligible” could not be a bigger misnomer. In fact, “eligible” metal is actually NOT eligible to be delivered to long contract holders – as it is simply stored at the COMEX on behalf of current customers. Conversely, “registered” gold and silver are available for delivery to contract buyers; and thus, by far the more important category. True, the eligible inventory must be watched, too – to see if customers are withdrawing metal out of fear of a potential “force majeure” confiscation. However, only the registered category tells the tale of how close – or far – the COMEX is from delivery default.
Once again, look at the above chart of JP Morgan’s supposed “eligible” COMEX gold inventory – which last month, plunged to a measly 46,000 ounces (roughly one tonne), down a stunning 99% from the 2,000,000 ounces held on December 2012; which, per what I wrote above, happened to be when the current PM raid commenced. In other words, as the PAPER gold price was taken from $1,775/oz to $1,180/oz – below the cost of production at nearly ALL the world’s mines, nearly ALL of JP Morgan’s inventories were drained; presumably sent to points East.
Validating this point, the ENTIRE COMEX has experienced the same “inventory exodus.” In fact, the intensity of the COMEX gold inventory drain is even stronger; as it stood at a 52-week high of 3,000,000 ounces as recently as April 2013 – i.e, just before the Cartel orchestrated “ALTERNATIVE CURRENCIES DESTRUCTION.” Why JPM’s inventory drain started five months earlier we’ll probably never know; however, the end result is the same – as total COMEX registered gold inventory has in the past four months plunged by an astounding 75%, to just 768,000 ounces…
As for silver, the recent trajectory has been slightly different, but the big picture trend no different. Since December, COMEX registered silver inventories have meandered in the 35 million to 50 million range; however, they recently plunged to 39 million ounces. And consistent with Miles Franklin’s experience in the retail bullion markets, the PHYSICAL silver drain has been far more dramatic in recent years. Since 2008’s Global Meltdown I, COMEX registered gold inventories have fluctuated wildly with market trends (actually, note how fast they drained when “DOLLAR-PRICED GOLD” achieved its ALL-TIME HIGH in September 2011). However, they have been relatively range-bound until this year’s plunge. Conversely, the silver inventory drain has been far more pervasive and uninterrupted since 2008 – with the net result being a reduction in registered inventories of 57% in the past five years…
And now for the punch line, per the title of today’s article; to be accomplished with a wee bit of second-grade math. First, let’s look at the COMEX registered gold inventory of 768,000 ounces; at $1,400/oz, worth roughly $1.1 billion; and next, the registered silver inventory of just 39 million ounces; at $24/oz, valued at $936 million. In other words, just $2 billion measly “dollars” – or €1.5 billion “euros” – could take out the ENTIRE COMEX PM inventory in a single day.
“ADMIRAL SPROTT” alone has purchased $2.4 billion of PHYSICAL gold through his PHYS bullion fund since its inception in 2010; and $1.4 billion of PHYSICAL silver through its PSLV fund in that same period. And don’t forget the three “Spicer Funds” seeking to do the same; the GTU gold trust, the SVRZF silver trust, and the “granddaddy of them all” – the $4.3 billion market cap Central Fund of Canada, ticker CEF. As readers are well aware, I am not a major fan of these funds because the Cartel clearly naked shorts them to prevent trading at the premiums to Net Asset Value necessary to catalyze new offerings. However, I am very encouraged as to how PSLV has fought through the Cartel’s hurdles to trade at a 2% premium to NAV as I write. If it gets back to a 5% premium or so – and before yesterday’s Cartel raid, it was up to 3%, I expect the Admiral to pull the trigger on a new, MASSIVE offering intended on forever silencing the manipulators.
Anyhow, my point is that the Sprott and Spicer Funds are merely “pimples on the arse” of the global financial community. Just in the private realm, there are nearly 1,500 billionaires; let alone, the countless corporations, municipalities, and sovereign wealth funds capable of taking up the rapidly dwindling amount of inventory. Until that – inevitable – time, you have the “opportunity of a lifetime” to PROTECT your net worth with the limited – and contracting – PHYSICAL gold and silver supply still available. Unfortunately, if you wait until afterwards, you will be forever “sentenced” to join the masses in HYPERINFLATIONARY HELL. And trust me, the smartest “1%” are already doing so – per this quote below from Steve St. Angelo…
Together, Silver Maple and Silver Eagle sales will likely be between 68-71 million ozs in 2013. This is an amazing figure, as it represents 9% of total 2012 world silver production of 787 million ounces.
-SRSRocco Report, August 27, 2013
