Saturday, February 8, 2014

Ed Steer's Gold and Silver Report ( Market manipulations become more extreme , more desperate ) - February 8 , 2014 - Data , News and Views touching upon the precious metals -- additional items from GATA ( key article discussing German gold repatriation attempts and German BS regarding same ) and Koos Jansen ( China's need to buy gold ) ..... JP Morgan selects Mercuria for the sale of its physical commodities unit - Blythe Masters not part of the package ? Blythe Masters Withdraws From CFTC : Furious Twitter Backlash Blamed


By the time the jobs report came out at 8:30 a.m. EST in New York yesterday, gold was up about five bucks or so from it's closing price on Thursday.  The jobs number precipitated a down/up price spike---and the 'up' spike got hammered flat by JPMorgan et al within 15 minutes.
Once the London p.m. gold fix was out of the way, the gold price rallied a few dollars going into the London close---and then the gold price traded sideways into the 1:30 p.m Comex close.  Once electronic trading began, the gold price got bid up another five bucks by 3 p.m. EST---and after that it traded pretty flat into day's end.
The low and highs were recorded by the CME Group at $1,255.50 and $1,272.00 in the April contract.
Gold finished the Friday trading session at $1,267.10 spot, up $9.30 from Thursday's close.  Volume, net of February and March, was pretty decent at 145,000 contracts.
Here's the New York Spot Gold [Bid] chart, so you can see the Comex price action in far more detail---especially the shenanigans at 8:30 a.m. EST.
The price action in silver was similar to gold's, but not as volatile---and the price moment at the jobs numbers release is barely noticeable on the Kitco chart below.
The CME recorded the low and high ticks as $19.755 and $20.09 in the March contract.
Silver closed on Friday in New York at an even $20.00 spot, which was up 5.5 cents from Thursday.  Net volume was 33,500 contracts.
I'm including the New York Spot Silver [Bid] chart only to show you the cheesy attempt by "da boyz" to close silver back below the $20 spot price mark right at the 5:15 p.m. close of electronic trading.  They didn't quite make it, but the attempt is very obvious.
Platinum and palladium also got dealt with at the Comex open in a pattern that's all too familiar.  They aren't even trying to be subtle about it. Here are the charts.
The dollar index closed in New York late on Thursday afternoon EST at 80.90.  It traded sideways until 8:30 a.m. in London---and then popped up to 81.00 by 8 a.m. in New York.  From there it slid a bit into the jobs numbers, before falling down to 80.72 within a minute of the news.  It rallied to 81.85 at the London p.m. gold fix---and then headed quietly lower for the remainder of the Friday session, closing just off its 80.65 low of the day---at 80.67---down 23 basis points from Thursday.


The CME's Daily Delivery Report showed that 118 gold and zero silver contracts were posted for delivery within the Comex-approved depositories on Tuesday.  Canada's Bank of Nova Scotia---and JPMorgan out of its in-house [proprietary] trading account---were the two short/issuers of note, with 82 and 30 contracts respectively.  The only two long/stoppers of note were HSBC USA with 77 contacts---and Barclays with 32 contracts.  The link to yesterday's Issuers and Stoppers Report is here.
There were no reported changes in GLD on Friday---and as of 9:47 p.m. EST yesterday evening, there were no reported changes in SLV, either.
The U.S. Mint had a tiny sales report yesterday.  They sold 25,000 silver eagles---and that was all.  Month-to-date in February the mint has sold 6,000 troy ounces of gold eagles---5,000 one-ounce 24K gold buffaloes---and 850,000 silver eagles.  Based on these numbers, the silver gold sales ratio checked in at 77 to 1.
Because some or all of the silver eagles sales reported on Monday were probably from January, I expect the silver/gold sales ratio to drop by about 50% as the February sales month progresses.
Over at the Comex-approved depositories on Thursday, they reported receiving 39,826 troy ounces of gold---and shipped out 3,118 troy ounces.  Virtually all of the deposit ended up with HSBC USA.  The link to that activity is here.
But the big surprise was in silver, as an eye-watering 3,013,565 troy ounces of were deposited, with the lion's share disappeared into HSBC USA.  A total of 493,702 troy ounces were reported shipped out.  A big chunk of the in/out activity was a transfer of 489,842 troy ounces out of Scotia Mocatta and into the vaults of JPMorgan Chase.  The link to that action is here---and it's definitely worth a look.
The Commitment of Traders Report for positions held at the close of Comex trading on Tuesday, February 5 turned out to be quite a surprise.  The headline number in silver was the big one, as it showed that the Commercial net short position declined by a very dramatic 6,181 contracts, or 30.9 million ounces.  The Commercial net short position has now shrunk back down to 74.3 million ounces.
Ted says that JPMorgan decreased their net short position by around 3,000 contracts---and their short-side corner in the Comex silver market is down to around 14,000 contracts---about 70 million ounces---which he says represents around 12% of the entire futures market in silver on a net basis.  The raptors, the Commercial traders other than the Big 8, added 2,400 contracts to their long positions---and Ted also said that this is their highest net long position in a year.
And as an aside, the Big 4 traders in silver [which includes JPMorgan, of course] hold 38,931 Comex contracts short.  That translates into 194.6 million troy ounces, or just under 100 days of world silver production.
Before departing silver and moving on to gold, the 70 million troy ounce short-side corner held by JPMorgan represents 94% of the entire Commercial net short position in silver.  This sort of redefines the meaning of the word "concentrated"---doesn't it?
In gold, the Commercial net short position actually increased by 803 contracts for the reporting week---but under the hood, Ted Butler says that JPMorgan Chase actually increased their long-side corner in the gold market by another 4,000 contracts or so.  Their long side corner is now back up to about 66,000 Comex contracts, or 6.6 million ounces.  Ted says that JPMorgan's long-side corner in gold now represents 21% of the Comex futures market on a net basis basis.
I'll have more to say about this in The Wrap at the bottom of today's column.
The February Bank Participation Report, using data extracted from the Commitment of Traders Report, showed significant changes in both gold and silver---and there were decent changes in platinum as well.
In gold, 4 U.S. banks are net long the gold market by 43,721 Comex futures contracts.  That's an increase of 4,462 contracts from the January BPR.  Ted Butler said further up that JPMorgan is net long about 66,000 Comex futures contracts in gold---so that means that the other 3 U.S. banks must hold a combined net short position of around 22,300 contracts to make the BPR numbers add up properly.  Two of these three remaining U.S. banks are HSBC USA and Citigroup---and the short position of the fourth U.S. bank would be immaterial.
The situation in gold within the U.S. banking system certainly redefines the word "dichotomy".
In gold, 22 non-U.S. banks increased their Comex net short position in gold by an eye-watering 23,744 contracts, which was almost a 300% increase from the January BPR.  I would hazard a guess that this increase in Comex short position was taken on by only one or two foreign banks, but which ones?
Here's Nick Laird's 5-chart BPR set on gold.  Charts 4 and 5 are the pertinent ones on all four precious metals---and the 'click to enlarge' feature really helps here.
In silver, 3 or less U.S. banks are short 14,076 Comex silver contracts on a net basis.  But since Ted mentioned in his comments about silver in the COT Report further up, that JPMorgan's short side corner is now about 14,000 contracts on a net basis, I have to assume that the short positions of the other two U.S. banks---HSBC USA and Citigroup---are now zero, or effectively zero, as that's the only scenario that jibes between Ted's numbers and what the numbers in the Bank Participation Report say.  If that's the case, this is an amazing development---and I'll be talking to Ted about that later today to see if my take on this is close to being correct.
[I fired the above paragraph off to Ted late last night---and heard back from him about 4:30 a.m. EST this morning.  His reply was short and sweet:  "Yeah, that's basically correct."  So this is an amazing development---and it all happened in the month since the January Bank Participation Report was released.]
In silver, at least 13 non-U.S. banks are net short 14,137 Comex futures contract in silver.  That's an increase of 659 contracts from the January report, which isn't a lot.  And as I've been saying for quite some time now, the lion's share of this short position is most likely held by Canada's Scotiabank, although the CME's Daily Delivery Reports from 2014 certainly show that they are heading for the exits as fast possible.  The short position of the 12 remaining non-U.S. banks, when divided up more or less equally, are immaterial---well under 1,000 Comex contracts apiece.  Here are Nick's BPR charts for silver.
In platinum, the February BPR showed that '3 or less' U.S. banks were net short 13,298 Comex futures contracts.  That's an increase of a bit more than 20% from the January report.
Also in platinum, at least 14 non-U.S. banks were net short 3,625 Comex platinum contracts, which is a 100% increase from the 1,871 contracts they held short in the January BPR.
For a tiny market such as platinum, these changes are enormous, especially for the three U.S. banks---but not so much for the 14 non-U.S. banks, as their positions in the grand scheme of things are immaterial as well.  Here are Nick's chart for this precious metal.
In palladium, 3 or less U.S. banks were short 8,932 Comex futures contracts [they hold zero long positions].  That's a decline of 794 Comex contracts from the January BPR.
Also in palladium, at least 13 non-U.S. banks were short 2,484 Comex contracts, which is only an increase of 2% from the January BPR, which is immaterial.  Here are Nick's charts for palladium.
February's Bank Participation Report shows once again that it's only the positions held by the '3 or less' U.S. banks in all four precious metals that really matter.  Yes, there was an increase in the short positions held in gold by the 22 non-U.S. banks---and Canada's Bank of Nova Scotia still holds a significant Comex short position in silver---but the price management scheme when you look at the hard numbers in this BPR, points to these '3 or less' U.S. banks.  And the tallest hog at the trough---and getting taller all the time, is JPMorgan Chase.
Before heading into today's stories, here's a chart from Nick Laird showing December imports into China through Hong Kong. It's old news now, as the data was leaked to Bloomberg and Reuters a couple of weeks ago, but Nick's chart is still a wonder to behold now that the "officially" released import figures are added to it---and it gets more wonderful with each passing month.


Selected non redundant articles , news and views.....

Doug Noland: Emerging Markets, Hedge Funds and Corporate Debt

Global markets have turned highly unsettled. The S&P500 opened the week at about 1,783, sank to an intraday low of 1,738 on Wednesday before rallying to close the week at 1,797. The Goldman Sachs Most Short index sank 4.0% Monday, was little changed Tuesday, fell 1.6% Wednesday, jumped 1.7% Thursday and then surged 3.3% Friday. High profile hedge fund short positions have turned wildly volatile. Green Mountain Coffee surged 33.0% this week.

Currency markets have turned treacherous. Those short the commodity currencies abruptly found themselves on the wrong side of a squeeze. The New Zealand dollar gained 2.6% this week, with the Australian dollar up 2.3%. Some EM currencies enjoyed strong weekly gains. The Polish zloty increased 3.0%, the Turkish lira 1.7%, the Hungarian forint 2.6%, the Argentine peso 2.3%, the Brazilian real 1.4%, the Russian ruble 1.1% and the Czech koruna 1.1%.

Overall, global markets these days convulse between “risk off” and “risk on” – in bloody trench warfare between market bulls and bears. Greed and fear vacillate between the two camps. The yen weakened only modestly this week, and EM equities were generally unimpressive. EM bonds generally held their own. Mexico’s sovereign debt rating was upgraded, which lent some support to the sector.

With each passing week, Doug's weekly commentary becomes more valuable and insightful.  It's always a must read---and this week is no exception.  It's posted on the prudentbear.comInternet site---and my thanks to reader U.D. for sending it to me before I had a chance to dig it up on my own.

BOE Staff Said to Have Condoned Currency Traders’ Conduct

Bank of England officials told currency traders it wasn’t improper to share impending customer orders with counterparts at other firms, a practice at the heart of a widening probe into alleged market manipulation, according to a person who has seen notes turned over to regulators.
A senior trader gave his notes from a private April 2012 meeting of currency dealers and two central bank staff members to the Financial Conduct Authority about six weeks ago because of mounting media coverage of the investigation, said the person, who asked not to be named while probes are under way.
Traders representing some of the world’s biggest banks told officials at the meeting that they shared information about aggregate orders before currency benchmarks were set, three people with knowledge of the discussion said. The officials said there wasn’t a policy on such communications and that banks should make their own rules, according to the people. The notes could drag the U.K. central bank into another market-rigging scandal two years after it was criticized by lawmakers for failing to act on warnings that Libor was vulnerable to abuse.
This Bloomberg story, filed from London, was posted on their website yesterday morning MST---and I thank Manitoba reader Ulrike Marx for sending it our way.

German court warns there are 'important reasons to assume' ECB bond-buying is illegal

The move is a blow to the euro's credibility because the ECB's September 2012 announcement that it was prepared to make the potentially unlimited sovereign bond purchases to defend the European Union's single currency is credited with saving the eurozone.
Eight judges representing the senate of theBundesverfassungsgericht, Germany's highest court have announced that it will make a final ruling on the ECB's Outright Monetary Transactions (OMT) programme only after referring their questions for "interpretation" in the EU courts.
In a statement, the judges have referred a series of questions to the EU's Court of Justice signalling that they were "inclined" to regard the OMT decision as illegal as an "ultra vires act" beyond the ECB's powers. A separate ruling on Germany's participation the eurozone's bailout fund will be made on 18 March.
This very interesting news item was posted on Internet site yesterday morning GMT---and I found it embedded in a GATA release.  Roy Stephens sent me the Ambrose Evans-Pritchard comments on this news item in the wee hours of this morning---and it's worth the read.  The headline doesn't mince words---"German court parks tank on ECB lawn, kills OMT bond rescue".

Bron Suchecki's primer on bullion banking's fractional-reserve nature

The Perth Mint's Bron Suchecki provides a good primer on the bullion banking business, explaining how the unallocated nature of much of the business is tempered by the timing of the maturity of its obligations.

While Suchecki's commentary doesn't really get into GATA's issue, surreptitious intervention in the gold market by central banks, often conducted through intermediaries like bullion banks, maybe it will encourage people to aim their complaints about market manipulation more accurately.

Suchecki's commentary is headlined "Fractional-Reserve Bullion Banking and Gold Bank Runs -- How Can I Default on Thee? Let Me Count the Ways" and it's posted at his Internet site, Gold Chat.

Well, dear reader, I'll be happy to admit that I don't understand everything that Bron speaks of here---and if you have any questions regarding the contents of this essay, I would suggest that you direct them to him---and not to me.  Thanks.  I found his commentary embedded in another GATA release yesterday.

Silver bullion coin demand has quadrupled in since 2007, says the U.S. Mint

Silver bullion coin demand  quadrupled between 2007 and 2013 the U.S. Mint noted in an eye-opening report this week explaining its silver “allocations” to authorized purchasers.
The Mint said there is plenty of raw silver material available for purchase in the open market. However, periodic shortages of the blanks used for coin production do develop.
It attempts to manage its supplies in a “manner that ensures we have a sufficient number of coins to meet the weekly demand of our authorized purchasers,” it said. “When that demand exceeds our ability to acquire a sufficient number of blanks, we then go on allocation until our inventories can be rebuilt again and the supply of blanks increased so that time spent on allocation is minimized.”
This short story was posted on the Internet site late Thursday afternoon EST---and it's the second contribution of the day from Elliot Simon.

China's Gold Demand Remains Robust After Lunar New Year Holiday

China returned to the physical gold markets strongly on 7 February, after a week-long break, as banks and retailers moved to replenish stock following solid sales during the Lunar New Year holiday.
The Chinese New Year, celebrated on 31 January, usually triggers a surge in bullion purchases as the period is considered auspicious.
7 February's increase in premiums and trading volumes on the Shanghai Gold Exchange, a physical platform, indicated that jewellery and bullion sales during the new year holiday period were robust in the world's biggest gold consumer.
Shanghai premiums for 99.99% purity gold climbed to $11 an ounce over London prices. They hovered at about $4 on 30 January just before China went on holiday. Trading volumes hit their highest in a month.
This must read gold-related news item was posted on theInternational Business Times website yesterday afternoon GMT---and it's the third and final contribution of the day from Ulrike Marx.

Two more U.S. State Dept. memos show conspiracy to control gold price

Government records from decades ago don't necessarily prove what governments are doing today, but they can demonstrate the possibly enduring interest of governments in the matters at issue. That's what is done by two more U.S. State Department documents called to GATA's attention this week by our friend J.V.
The first is a memorandum about "the gold question" sent in March 1974 by the deputy assistant secretary for international finance and development, Sidney Weintraub, to the undersecretary of state for monetary affairs, Paul Volcker, later to become, of course, chairman of the Federal Reserve Board. The Weintraub memo outlines the U.S. government's views and options about gold policy in preparation for a meeting with Secretary of State Henry Kissinger. The minutes of the meeting with Kissinger, held the following month, describe in detail the great but little-understood power of gold in the international monetary system and the interest of the United States in controlling gold's use as money.
The second document noted by J.V. is a memo written in January 1976 by Assistant Secretary of State for Economic and Business Affairs Thomas O. Enders to Secretary Kissinger about the decisions recently taken by the International Monetary Fund meeting in Jamaica, which had legitimized floating exchange rates among currencies. Enders' memo reviews the options for a role for gold in the international monetary system and notes that less-developed countries were especially opposed to any role, since they didn't have much gold -- though of course this was before gold mining became a major or prospective major industry in some of those countries, which are now substantially weakened by the efforts of industrialized countries to suppress the price of gold to support their own currencies.
Of course the foreign offices and central banks of the countries involved in these discussions made no public statements to clarify their policy objectives toward gold. That is, they met in secret to plot their policy, conspiring within their own governments and with other governments, as is always the case. Those who disparage the complaint of gold price suppression by central banks dismiss it as "conspiracy theory." But the government archives show that it is conspiracy fact. Just as often as not, of course, government itself is conspiracy.
This absolute must read GATA release, filed from Surinamvery early this morning EST by GATA's secretary treasurer Chris Powell, was posted on the Internet site long after I'd filed today's column---and I just asked Juli to stick it in here, rather than at the end, as I didn't want to have to rewrite my closing comments in the last story of the day.

Market Manipulations Become More Extreme, More Desperate: Roberts & Kranzler

With pressure being exerted by tight supplies of physical gold bars available for delivery to China, the Fed is growing more desperate to keep a lid on the price of gold. The recent large decline in the stock market threatened the Fed’s policy of taking pressure off the dollar by cutting back bond purchases and reducing the amount of debt monetization.
Thursday, February 6, provided a clear picture of how the Fed protects its policy by manipulating the gold and stock markets. Gold started to move higher the night before as the Asian markets opened for trading. Gold rose steadily from $1254 up to a high of $1267 per ounce right after the Comex opened (8:20 a.m. NY time). The spike up at the open of the Comex reflected a rush of short-covering, and the stock market futures looked like they were about to turn negative on the day. However, starting at 8:50 a.m., here’s what happened with Comex futures and S&P 500 stock futures...
At 8:50 a.m. NY time (the graph time-scale is Denver time), 3,225 contracts hit the Comex floor. During the course of the previous 14 hours and 50 minutes of trading, about 76,000 total April contracts had traded (Globex computer system + Comex floor), less than an average of 85 contracts per minute. The 3,225 futures contracts sold in one minute caused a $15 dollar decline in the price of gold. At the same time, the stock market futures mysteriously spiked higher...
This must read commentary by Dr. Paul Craig Roberts and Dave Kranzler was posted on the Internet site yesterday---and my thanks go out to reader David Caron for today's last story.


It also seems clear to me that the reason JPMorgan is not abandoning gold and silver is because the bank holds such a dominant and controlling market share in every aspect of gold and silver that it can’t depart without severely disrupting these markets. JPMorgan has grown to be such an integral factor in gold and silver pricing that its departure would necessarily create a price upheaval that will be welcomed by gold and silver investors. In fact, I believe JPMorgan (and the Feds) recognize this and that is why JPM has amassed such a large long position in COMEX gold and in physical silver; so that the inevitable price violence works for one last time in the bank’s favor.
When that day of upheaval will come is impossible to know, although it must be closer than ever before. In the interim, we must be prepared for whatever the COMEX and JPMorgan throw at gold and silver investors. In that sense, today’s [Wednesday] early price rig to the upside must be treated as both a fake-out designed to end at some point in induced selling; as well as a first step to the coming price violence to the upside. - Silver analyst Ted Butler: 05 February 2014
If you note the Kitco gold chart at the top of the page, you'll see the same price pattern every day for the last three days.  That extends all the way back to the first of the week, except you can't see it on this chart.  It was obviously the same pattern once again on Friday, as all four precious metals rallied into the Comex open, only to get smashed by JPMorgan et al shortly after.  My comments regarding Stevie Wonder still apply.
Ted and I got into a discussion yesterday after we'd both had a look at the COT Report, the Bank Participation Report---and the stunning in/out movements in silver at the Comex-approved depositories so far this year---along with the goings-on inside the SLV ETF.  All this frantic movement in silver, and to a lesser extent, gold---has to mean something---and can't continue like this forever.
It appears that something may be afoot.  It's out in public view with all the numbers were looking at, but it doesn't tell us precisely what's going on under the hood.  I would appear that we may be looking at the final death throes of the precious metal price management scheme---and only the exact timing is unknown.  I know that Ted will have much more to say about this in his column to paying subscriber later today.
To top it off, I've always been wondering why "da boyz" have been so in-you-face obvious about containing the rise in precious metal prices lately---especially during the New York session.  That goes for the share action as well, especially what I've observed during the first four trading days of this past week.  It's still my opinion that the powers that be in this world own every single solitary gold and silver mining stock that has been sold by the public during the last two and a half to three years---and that the float out there is not particularly large.  Ted thinks that they've been doing that with the physical metal [especially silver] as well---and I totally agree.
It appears that "da boyz" want as few public investors as possible on board when this thing finally flies.  The only thing left in JPMorgan's way is their big 14,000 Comex contract short-side corner in silver.  For years Ted Butler and I have been discussing the possibility that the record long positions held by the raptors [the Commercial traders other than the Big 8] may be the ticket out of JPM's short position, as I'm sure that it would be easy to arrange that enough raptor long positions get sold to JPMorgan to cover them---and it could happen quickly---within hours under the right pricing conditions.
This is all speculation on my part, but I can't shake the feeling that long before the 2014 calendar is out, we'll be looking at precious metal prices that we only dreamed about. 
That's the happy part.
As I and others have stated in the past, the world that exists when precious metal prices are that high may leave a lot to be desired so, to a certain extent, we should be careful what we wish for.
However, after all we've been through since May 1, 2011---I'll be happy to take that chance---and I suspect you feel the same way.
That's it for the day---and the week.
See you on Tuesday.



Contrarian play for GLD will strain gold supply, Sprott tells KWN

11:30p SRT Friday, February 7, 2014
Dear Friend of GATA and Gold:
Buying of shares of the gold exchange-traded fund GLD likely will increase this year as a contrarian play and put serious strain on the world gold supply, Sprott Asset Management's Eric Sprott tells King World News today, adding that the U.S. gold reserve is likely depleted:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

'Gold cartel' author Dimitri Speck interviewed about market manipulation

3:46p SRT Friday, February 7, 2014
Dear Friend of GATA and Gold:
European fund manager, gold market researcher, and GATA consultant Dimitri Speck, author of the new book "The Gold Cartel," was interviewed this week by financial journalist Dominic Frisby about manipulation of the gold market by central banks. The interview is 22 minutes long and can be heard here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Is Bundesbank repatriating only 1 tonne per week for the next six years?

1:06p SRT Friday, February 7, 2014
Dear Friend of GATA and Gold:
Here's something regarding yesterday's German Press Agency report quoting the Bundesbank as saying that small shipments repatriating Germany's gold from the Federal Reserve Bank of New York are "preferred for security reasons" --
-- a report that included an assertion attributed to the German newspaper Handelsblatt that "insurers will cover gold shipments only by air, not by ship, and will not insure shipments of more than 1 tonne at a time."
GATA's friend and consultant R.M. observes:
"I was just thinking. ...
"There are 295 tonnes of German gold still to move from the Federal Reserve Bank of New York to Frankfurt under the Bundesbank's plan to repatriate 300 of its 1,500 tonnes at the New York Fed by 2020. Five tonnes are reported to have been transferred already.
"There are 307 weeks from now until January 1, 2020.
"If the Bundesbank plans taking until 2020 to repatriate the German gold, that would mean flying an average of 1 tonne of gold per week from New York to Frankfurt every week between now and 2020, or 50 flights per year with two weeks of down time per year.
"That is crazy and a security nightmare in itself, since it would establish a routine pattern of gold flights between the same destinations. So the Bundesbank's explanation for the slow pace of its gold repatriation from the New York Fed looks even more bogus."
Of course that Western central banks are generally so secretive about their gold reserves and particularly about their gold swaps and loans --
-- is confirmation in itself that central banks are doing things with gold for which they fear accounting to their publics and the market. No one who disparages complaints of gold market manipulation by central banks has ever tried extracting critical documentation about gold from a central bank or has tried putting to a central bank a critical question about gold as GATA often has done. Indeed, no one who disparages complaints of gold market manipulation by central banks, including self-styled experts, has ever reviewed and disputed any of the extensive documentation:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Koos Jansen.....

The Need For China To Buy Gold

The other day Zero Hedge posted an image from a quarterly financial report from the Chinese central bank, the PBOC. When I first looked at it I thought for a minute the PBOC had announced a raise in their official gold holdings. Then I woke up and realized their gold holdings are disclosed in the second row from below, still stuck at 33.89 million ounces. I asked my friend in the mainland to translate the headers to get a better view on this summary. He was so kind to do so.

China Gold

China Gold translated

We can see Chinese FX reserves expressed in US dollars (which is still the most commonly used reserve currency and unit of account worldwide) having a total value of $3,821,315,000,000 (or $3.8 trillion) at the end of December. At least 34 % of these assets are denominated in US dollars in the form of US treasuries ($1.3 trillion). Only 1 % is held in physical gold according to the PBOC; 33.89 million ounces (1054 tons) was worth  $41,5 billion in December. Let’s compare these numbers with the a few other countries. From The World Gold Council:

World official gold holdings, January 2014

The Need For China To Buy Gold

China is in the top ten in terms of gold holdings, but only holds a fraction of gold relative to its total FX reserves.

The bulk of China’s FX reserves are extremely vulnerable for a devaluation of the US dollar. At the same time a devaluation of the US dollar is imminent, as Yu Yongding, a prominent Chinese economist and former member of the monetary policy committee of the People’s Bank of China, has expressed in numerous presentations. This is why China has a strong incentive to hedge against the USD by increasing their official gold holdings. From Yu Yongding at the LBMA conference 2012:

..Before taking over the Presidency of the Fed, Bernanke was very open in talking about the possibility of using inflation to solve the debt problem. He gained the very apt nickname ‘Helicopter Ben’, and I think he will rule out this option, but of course he will not say so openly.
..To push down the value of the dollar is another very important objective of QE, even though Bernanke refused to admit that this is the policy, I think Greenspan is more honest, because he is no longer the governor.
Essentially, the policy of QE is to shift the debt burden away from borrowers at the expense of creditors and I think this is basically the situation that China is facing.

Yu Yongding on QE

A big problem for China has been buying large quantities of physical gold without increasing the price. For this reason China’s strategy has always been to be as secretive as possible about its gold purchases. They don’t disclose their gold import numbers, nor any interim changes in official gold holdings. They hide their dire hunger for the yellow metal to simply bargain a better price. But sometimes their craving to buy gold (without affecting the market) slips through the media: 

Yu Yongding on gold QE RMB

China should increase its gold reserves appropriately, and China must take every chance to buy, especially when gold prices fall.

China should now rapidly increase its gold reserves, without pushing up prices of the precious metal excessively.

It’s especially true that as global gold prices make new highs, increasing gold reserves also become more difficult.

So China’s main objective is to buy as much gold for as little dollars. The main objective of the US is to devalue the dollar.

A Summary Of Potentially Coherent Facts

  • The US debt problem has created the necessity to devalue the dollar in order to shrink their debt (and boost export).
  • China holds at least $1.3 trillion in FX exchange which will be wiped out by a US dollar devaluation.
  • The US and China have a strong trade relationship; Both benefit from China exporting cheap goods to the US.
  • The US and China share a mutual interest in holding the value of the dollar in check for trading.

Can it be these two mighty countries agreed in early 2013 to support the value of the dollar for the time being, while heavily suppressing the price of gold in the paper markets to allow China to accumulate as much of the yellow metal as needed? This would surely provide the best outcome for both after what inevitably will happen: a devaluation of the US dollar and a revaluation of gold.

JP Morgan set to sell its physical commodities unit to Mercuria ( GS Alum ) , Blythe not part of the package ?

JPMorgan Chase & Co. (JPM) entered exclusive talks to sell its physical commodities unit to Mercuria Energy Group Ltd. as the bank seeks to end a five-year foray into owning and storing materials such as metals and oil, according to two people briefed on the matter.
The bid from Geneva-based Mercuria beat offers from Macquarie Group Ltd. (MQG) and Blackstone Group LP (BX), said one person, who asked not to be identified because the discussions are private. Blythe Masters, JPMorgan’s commodities chief, probably won’t join Mercuria as part of the deal, which is still being negotiated, the person said.
JPMorgan is selling the unit as regulators examine whether catastrophic losses at federally backed banks could endanger the financial system and lawmakers question whether firms have the power to manipulate some prices. The Federal Reserve said in July it might force insured lenders to get out of the business, and New York-based JPMorgan agreed later that month to pay $410 million for claims that it manipulated power markets.
Spokesmen for Mercuria and JPMorgan declined to comment, as did spokesmen for New York-based Blackstone and Sydney-based Macquarie. Reuters reported on the exclusive talks earlier today.
Photographer: Peter Foley/Bloomberg
JPMorgan Chase & Co. is selling the unit as regulators examine whether catastrophic...Read More
Mercuria, founded in 2004 by former Goldman Sachs Group Inc. traders Marco Dunand and Daniel Jaeggi, is the fourth-largest independent commodity trader. The JPMorgan unit would give Mercuria physical crude, petroleum products, power and natural gas trading portfolios in the U.S. as well as oil infrastructure assets in North America. The business also owns metals warehouses, including Henry Bath & Son Ltd. operations that would complement Mercuria’s metals-trading business.

Bigger Competitors

The JPMorgan business could add $150 million to $200 million in annual net income to Mercuria, one person said, moving the trader closer to profits achieved by larger competitors Vitol Group and Trafigura Beheer BV and ahead of Geneva-based trader Gunvor Group Ltd.
Mercuria, which posted a $343 million profit in 2012 on revenue of $98 billion, has been expanding its non-oil business in the past 18 months to include metals, gas, power and agricultural products. Trading from non-oil commodities now accounts for more than 50 percent of the company’s revenue, Mercuria has said.
Masters, 44, joined New York-based JPMorgan in 1991 after internships at the firm and became known that decade for helping develop credit-default swaps, the derivatives that help investors hedge risks on bonds. She was named to run the commodities business in late 2006.

Goldman Sachs

JPMorgan, the biggest U.S. bank by assets, began its buildup in commodities trading with the 2008 acquisition of Bear Stearns Cos., which included an energy-trading platform. To compete with Goldman Sachs and Morgan Stanley, JPMorgan bought UBS AG’s global agriculture and Canadian commodities units in 2009, and part of commodities trader RBS Sempra in 2010. That deal brought the Henry Bath unit.
Before the acquisitions, JPMorgan missed out on opportunities that enriched rivals, including the 2008 spike in oil prices, because it lacked the infrastructure to store and ship oil and other commodities, Masters told employees during an August 2010 conference call.
Competitors were now scared of JPMorgan, she said at the time. “They’d better be, because this is a platform that’s going to win,” Masters said.

Customer Complaints

Spurred by complaints from industrial customers, lawmakers held hearings in July on whether banks abused their ownership of raw materials to inflate prices. They also warned that a catastrophe involving a bank-owned supertanker or power plant could jeopardize a lender’s health and leave taxpayers on the hook for a bailout.
A day earlier, the Fed said it was reviewing a decade-old decision that allowed lenders including JPMorgan and Citigroup Inc. into the business because physical commodities were “complementary” to banking. A reversal probably wouldn’t force out Goldman Sachs and Morgan Stanley, which are covered under a separate 1999 law.
JPMorgan announced in July that it was exploring a sale of its physical commodities business, including energy trading. The unit produces $750 million in annual income before compensation costs, people who have seen documents circulated to bidders have said.

(Reuters) - Fast-growing trading house Mercuria, led by two former Goldman Sachs (GS.N) executives, has become the front-runner to buy the physical commodities unit of JPMorgan (JPM.N), one of the most powerful oil and metals desks on Wall Street, two sources told Reuters.

JPMorgan decided to sell its multi-billion dollar physicalcommodities division last year under rising regulatory and political pressure to retreat to the bank's core business of lending instead of speculating in raw materials.

"This week, JPM entered into exclusive talks with Mercuria," one of the sources familiar with the process told Reuters.

The final deal could take a few months to conclude, one of the sources said. If agreed, it would catapult Mercuria into the top tier of trading houses with Glencore Xstrata (GLEN.L), Vitol and Trafigura TRAFGF.UL.

In recent weeks, Mercuria was competing with Australian bank Macquarie Group (MQG.AX) and private equity manager Blackstone Group LP (BX.N) to buy JPMorgan's unit, sources had said.

Private and lightly regulated trading houses have benefited most from a major retreat bybanks from commodities trading over the past two years.

Companies like Glencore and Russian oil major Rosneft (ROSN.MM) hired whole teams of traders from banks such as Morgan Stanley. (MS.N) But Mercuria could become the first trading house to absorb an entire physical division from a bank.
JPMorgan and Mercuria both declined to comment. A spokesman for Blackstone in London declined to comment. A spokesman for Macquarie in London did not immediately respond.

Mercuria was founded by Marco Dunand and Daniel Jaeggi, who both worked as executives at Goldman Sachs and then trading house Sempra, which was later bought by JPMorgan from the Royal Bank of Scotland (RBS.L).

In less than a decade, Dunand and Jaeggi have built Mercuria into one of the world's largest oil traders, with annual turnover of around $100 billion and 700 traders spread across the globe. But it is still much smaller than the world's largest trader, Vitol, which has turnover of $300 billion.

The deal value has yet to be agreed and will depend to a large extent on the valuation of large stockpiles of oil and metals the bank holds, one source said.

In documents circulated to potential buyers, JPMorgan valued its physical commoditybusiness at $3.3 billion, with an annual income of $750 million. JPMorgan paid nearly $2 billion to buy the largest part of the business from RBS in 2010.

The sale will allow JPMorgan chief executive Jamie Dimon to close the book on a public set-back in a business once hailed as an engine for growth following a dire mix of waning margins, allegations of market manipulation and unprecedented political pressure over its role in the supply chain.

The sale will also raise questions about the future for JPMorgan's commodities chief Blythe Masters, who over the past five years spent billions of dollars building the biggest physical commodity trading operation on Wall Street, surpassing in size long-time giants Goldman Sachs and Morgan Stanley.

JPMorgan has access to a vast global metals trading and warehousing network, a big U.S. power and gas desk and Canadian oil storage leases.

The deal is expected to come with a contract supplying crude oil to the biggest U.S. East Coast refinery, the Henry Bath & Sons Ltd metals warehousing business with about 80 storage sheds stretching from Rotterdam in the Netherlands to Johor in Malaysia, and a sizeable U.S. natural gas and power trading book.

Mercuria has said it is looking to expand in the United States like many other traders as a shale oil boom is opening up new ways to make profits.

"Mercuria have expanded aggressively into new areas of commodity trading in the last two years, and part of that strategy has been hiring some of the best traders from the banking world," said Jake White, head of front-office commodities recruitment at Selby Jennings in London.

"But taking on a business of the size and prestige of JPMorgan's physical business is definitely their biggest move yet, and will undoubtedly propel Mercuria into the top tier of commodity trading houses."

Rising global capital requirements for banks under the Basel III regulatory framework and new restrictions on proprietary trading introduced to prevent a repeat of the 2008 financial crisis have made commodity markets less attractive for many banks.

Commodity income at the world's top 10 investment banks has fallen from a peak of more than $14 billion in 2008 to just $5.5 billion in 2012, according to London-based consultants Coalition.
For many U.S. banks, it was their prime regulator - the Federal Reserve - that delivered the heaviest blow, making clear in recent years that it was increasingly uneasy with Wall Street's expansion into physical trading of raw materials.

Amid negotiations to resolve a host of other regulatory investigations, including the "London Whale" credit losses from derivatives trading in 2012, JPMorgan's Dimon was also stung by a probe into allegations of U.S. power market manipulation ending in a record $410 million settlement.

JPMorgan is expected to retain its basic commodity derivatives trading desk that hedges prices for customers.

While some of the industry's oldest hands such as Goldman Sachs aim to retain much of their commodities businesses, others are getting out or adopting different strategies.

Deutsche Bank announced late last year that it was largely exiting commodities trading, while Morgan Stanley is selling the majority of its global physical oil trading operation to Russia's Rosneft.

Blythe Masters Withdraws From CFTC : Furious Twitter Backlash Blamed

Tyler Durden's picture

Following our post yesterday which included the occasional F-bomb and got well over 40K readssince its posting late last night, the reaction was sharp and severe. So severe in fact that less than 24 hours later, Blythe Master has withdrawn from the CFTC. The culprit for Masters' resignation in just 24 hours? A very angry Twitter.
Blythe Masters, JPMorgan Chase & Co.’s commodities head, withdrew from an advisory committee of the U.S. Commodity Futures Trading Commission a day after her appointment was disclosed,  according to two people with direct knowledge of the decision.

The regulator may include another executive from New York-based JPMorgan on the committee, said one person close to the bank who requested anonymity because the move hasn’t been publicly announced. Masters, 44, withdrew because the company’s sale of its physical commodities unit will keep her occupied, the person said.

JPMorgan is selling a division that deals in assets such as metals and oil, as government watchdogs examine whether federally backed lenders should be involved in such markets. Masters’s appointment drew criticism from Twitter users who questioned the propriety of her advising the regulator of futures and swaps.

Masters, whose appointment was listed on the CFTC’s website yesterday, had been scheduled to participate in a Feb. 12 meeting to discuss cross-border guidance on rules. She was invited to the panel by acting Chairman Mark Wetjen, said one of the people.

Brian Marchiony, a JPMorgan spokesman, said the company had no comment.
Perhaps there is some justice in the world.
We do, however, have one question for Ms. Masters even though we understand she will be "very occupied due to the sale of JPM's physical commodities unit": does this premature resignation confirm that the allegations against the JPMorganite, who had so far been wrapped up in "neither admissions nor denials", are in fact true and accurate? 
And while we have her attention, can Ms. Masters also please advise what other markets she was manipulating?