So Who Sold All That Gold? - JPM's Own Version

Tyler Durden's picture




 

Since prevailing fringe theory is that JPMorgan and the other bullion banks 'control' the price of gold, we thought it would be interesting to hear yet another explanation for last week's monumental precious metal market events... from the horse's mouth...

 

Via JPMorgan,

Who sold the gold?

 

Gold’s 1 day fall of 9% on Monday was one of the largest 1-day falls in the history of the gold market, but what do we know about who was selling?

 

We have three high frequency flow indicators for the gold market: CFTC futures positions, Gold ETFs and gold coin sales in the US. Of course, these only make up a portion of gold demand but the remaining physical demand is difficult to capture on a high frequency basis.

 

The peak in gold ETF holdings of physical gold was actually in December 2012 and there have been reasonably steady outflows since then. In contrast, the peak in the gold price was in October 2012 and it has been falling steadily since then.

 

Additionally, the outflows from gold ETFs have continued in the latter part of this week, even though the gold price has rebounded some 4%. Looking further back there has not been a strong correlation between ETF flows and gold prices on either a high or low frequency basis. ETFs do not seem likely to have been the culprit here, although Monday’s $1.8bn outflow undoubtedly didn’t help.

 

[ZH: It would seem the data in the chart above suggests that JPM is incorrect and ETFs were very responsible - as the momentum from the Q4 to Q1 divergence corrects]

 

Sales of American Eagle gold coins, perhaps an indicator of retail investment demand, have actually risen sharply over the past two weeks.

 

 

Total sales so far in April are 153,000 ounces, already the highest month since mid 2010, and we still have two weeks to go.

 

[ZH: It seems - unlike stocks - that a falling price does encourage more demand]

 

That leaves CFTC managed money futures positions. Unfortunately, we only have data up until last Tuesday, the 9th of April, so not including the sell-off period itself. However, there has historically been a strong correlation between changes in these positions and changes in the gold price, so it seems likely that CFTC positions will also have fallen sharply, but we have to wait until next week to know for sure.

 

[Updated chart below shows the exact opposite]

 

 

[ZH: The updated chart above suggests that this was not the case as net long positions actually rose on the week...]

 

In summary, of the three high frequency indicators of gold demand at our disposal, it seems likely that futures investors will turn out to be the biggest sellers over the sell-off period. Of course this doesn’t tell us anything about causality, especially as we are missing a large part of the physical market. Anecdotal reports suggest that physical demand, driven by China was very strong in the days following the sell-off, so this may well be what has allowed prices to stabilize at current levels.

Hhhhmmm - doesn't seem so convincing...

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Sun, 04/21/2013 - 19:16 | 3481649 HedgeAccordingly
HedgeAccordingly's picture

the ETF effect -.. probably going to 1200?    - the tail wagging the dog... http://hedge.ly/116COQz 

Sun, 04/21/2013 - 19:21 | 3481655 Croesus
Croesus's picture

Keep dropping the price, schemers! I'll keep buying the physical stuff, while you keep your paper.

 

That's "The Change I Can Believe In."

 

Sun, 04/21/2013 - 19:23 | 3481665 UnpatrioticHoarder
UnpatrioticHoarder's picture

The increase in open iterest is proof this was an orchestrated takedown.

Sovereigns (China, Russia) are taking on the shorts and seem OK with coughing up margin on their losing long positions because in order to clean out the West of its physical they need to buy when the volume is offered.

Sun, 04/21/2013 - 19:49 | 3481748 Pladizow
Pladizow's picture

Is Shaggy JPM's new head of media?

- It wasn't me!

Sun, 04/21/2013 - 20:01 | 3481757 TwoShortPlanks
TwoShortPlanks's picture

Gold Take-Down = Lloyd Craig Blankfein fighting for his life

I wanted to better understand the recent take-down on the Gold price, so I drew a rough schematic of all the major players which affect the overall pricing, this included the Central Banks, the Government (Bond trade with Bullion Banks), the Bullion Banks, the LBMA, the COMEX (Futures Market), and the Open Market (physical retail). I also included ETFs and assumed a conservative return between Gold Leasing and Bond buying.

I then looked at which entity loses and which entity wins if the Gold price rises or falls a modest amount. This turned out to be both the ETFs and the Open Market. The ETFs obviously being the greatest and especially if leveraged (a mugs game).

I then looked at which entity loses and which entity wins if the Gold price rises or falls a large amount. This turned out to be the ETFs, the Open Market and the Futures Market.

The next step was to see what happens with shortages and/or lengthy delays in supply or physical payment. Even though large swings in price affect the obvious players, it is nothing in comparison to just how far up the chain a squeeze hits.

In a squeeze, the back pressure from the Open Market (physical retail) creates a massive conflict between physical supply and….*drum roll*….the ability for a Bullion Bank to supply physical back to the Central Bank once a Gold Lease reaches maturity. Cash is no issue whatsoever since the Bullion Bank can offload Bonds into the marketplace.

(NOTE: There is a possibility that a large number of Gold Leases where paired up with a large number of Bonds reaching maturity, and that in order to make profit from the Lease-to-Bond they needed to pull down the Gold price….but I doubt it.)

If you assume, as in the case of last week’s response, that the Open Market drives a run into physical buying at discounted prices, then the only place physical can be derived is either the Central Bank, the Bullion Banks, or the COMEX.

Assuming the recent events involving the Mercantile Exchanges’ movement of Unallocated Gold (2 Million ounces was it?), then it is safe to say that there was insufficient physical supply within the system to meet internal demands (CB Lease maturity?).

Assuming these guys are somewhat astute, although motherfuckers as people, we can assume they had alarm bells ringing well in advance. You will recall the Talking Heads well in advance where, Goldman and the like (all Bullion Banks mind you) touted the end of the Gold boom, placing heavy Short Positions, and predicted a large drop in the near future (bringing on-board other leash lead Gimp banks and financial entities).

They then coordinated and set aside the multiple million ounces physical across the Mercantile Exchanges and set the take down.

According to KWN’s interview with Andrew Maguire, 55 Tons of physical was released into the system. I can only assume this was Long holders selling their hundreds of Tons of positions into the Futures Market, with the Mercantile Exchanges balancing the books since the physical (Unallocated Gold) having already been sent ahead of time, or, set aside earlier.

This 55 Tons probably didn’t move much more than a dozen meters in some vault however, the paper works sure as hell did.

Since the Government is attempting to raise inflation - or so they say - then I can’t for a minute believe that this was a Government intervention to bolster the US Dollar. I think its’ more likely to have been a Bullion Bank, left short on an upcoming Central Bank Gold Lease maturation date, in which they turned to the market instead of their own vaults.

This leads me to other possibilities; that the Barbaric Relic from the past has finally turned a corner in the mindset of the biggest banking entities on Earth. That Central banks are not re-issuing Gold Leases and are in fact calling them in upon maturation. That the chain of entities which comprise the paper and physical Gold system is now cavitating/surging/stalling as physical Gold leans-out.

If I’m correct, this sets the precedence for further take-down attempts as contracts come due and the cavitation continues.

Soon, not too far into the future, expect to see ALL Futures Contracts for Gold settled in paper Fiat….Oops, too late!

Let's see how long Goldman Sachs and JP Morgue can suck through a straw? Remember, the Central Banks won't settle in paper they already print!

And since Goldman and JPM, playing as they usually do, probably have far more Gold Leases than it is possible to settle, will one day soon, need to get on all fours and beg for forgiveness to those who preside above them (and they exist), to those Blankfein and Dimon owe! Coz in their world, Commercial Law doesn't exist, nor does bankruptcy...in our world the two certainties are death and taxes, in their world it’s death and debt.

JP Morgan was thought to be loaded, but it turned out that he wasn’t, and more than likely he was merely an agent for other, much larger, entities. Blankfein and Dimon are no different. He is merely a minions trapped in their own belief that they are the Emperor.

The choice to go unseen does not erode the power to intervene.

Whos a Muppet now Blankfein?

Sun, 04/21/2013 - 20:06 | 3481794 Stuck on Zero
Stuck on Zero's picture

I'm old enough to recall what happened when Jimmy Carter decided to take down the price of gold.  He sold tons of U.S. reserves.  The price went up.  He sold more.  The price went up more.  He sold more.  The price went up more again.  Fortunately he was booted from office before he could continue that dance for long.

 

Sun, 04/21/2013 - 20:33 | 3481856 Pinto Currency
Pinto Currency's picture

 

Andrew Maguire himself notes that for more than 6 weeks the LBMA and the Shanghai Gold Exchange alone have been allocating ~ 30 tonnes of gold per day for delivery.  That's ~ 1 million oz. per day.  And we've seen near continual backwardation in the price structure for silver and gold as well - this speaks of extraordinarily strong physical demand.

JPM will know this too.

Also, when investors stand for delivery of physical gold at GLD and close out positions at GLD, JPM categorizes this as a decline in demand. 

Seems that there are perhaps far more useful sources for information about gold than the bullion bank widely accused of being at the center of gold and silver market rigging.

Given the reality of the G20s 'bail-in' deposit asset theft plans revealed by Cyprus and subsequent, it seems reasonable that physical gold demand is accelerating, not losing favor.

Sun, 04/21/2013 - 20:34 | 3481879 Bay of Pigs
Bay of Pigs's picture

+1 Excellent observation Pinto.

Sun, 04/21/2013 - 21:14 | 3482023 deKevelioc
deKevelioc's picture

Gaslighted by JP Morgan.  Now, that's precious.

Sun, 04/21/2013 - 21:30 | 3482113 w00dmann
w00dmann's picture

+1 for the 'gaslight' reference

Mon, 04/22/2013 - 03:22 | 3482822 Lore
Lore's picture

BILL COSBY explains why JPM "doesn't know":  

http://www.youtube.com/watch?feature=player_detailpage&v=qyMSc97UksM#t=150s

Sun, 04/21/2013 - 23:01 | 3482433 deKevelioc
deKevelioc's picture

God, I love your post!  I never thought I'd think I'm going Chinese; I think I'm going Chinese; I really think so.

Mon, 04/22/2013 - 06:12 | 3482935 Peter Pan
Peter Pan's picture

Excuse my ignorance Pinto Currency, but is this million oz allocation per day, the big boys' way of putting some sort of constraint on the rise in price by feeding the market with low cost gold? Because yesterday I was posing the question in another ZH post as to WHO could be selling low priced gold at such a low price. I do not fully understand this part of the market so once again forgive me my question if it sounds stupid.

Mon, 04/22/2013 - 10:08 | 3483531 Pinto Currency
Pinto Currency's picture

Nobody knows PP.

All that can be seen is that 3x annual mine supply is being pulled from those two markets alone. 

Then there's Dubai, Hong Kong, etc.

Sun, 04/21/2013 - 23:35 | 3482514 MythicalFish
MythicalFish's picture

They gonna stop soon, geniuses figured out that the jump in commodity vol threatens the vix short.. Wouldn’t read too much into their hedge fund’s short beta, its mostly muppets’ money - and if you buy jnj, sell aapl its short beta but still a momo trade..

 

Sun, 04/21/2013 - 21:28 | 3482105 seek
seek's picture

Excellent writeup. I has mused a few days about that perhaps the CBs weren't renewing leases, and your argument really supports that notion.

As I mentioned then, because the BBs and the gold market in general is writing 100oz of paper per 1oz of gold, it's basically fractional reserve gold banking, and the CBs not renewing leases is equivalent to people pulling assets out of the bank -- AKA a bank run.

Given that, it's pretty clear why the BBs want the price to be as low as possible to settle contracts. It's also clear that with the leasing and inventory drawdown, as you point out, someone isn't getting their gold back. Actually, a chain of someones -- the BBs won't get back physical that's been minted or shipped to the far east, and in turn, the central banks won't get the gold back from the BBs.

Here is where it will get uncomfortable -- Germany, the US, or someone else has lost their gold. I could see major efforts made to keep this quiet and continue to suppress the price so that they can re-acquire physical to replace what is lost. Talk about dichotomy! You've got a short squeeze that has to be hidden to keep the price going up, and hiding it increases the competition for the physical. The only outs I see are nationalization or somehow directing all new physical into the BBs/CBs.

It probably makes the most sense for the nations to just claim physical in vaults as their own, and blow up the BBs and paper claims. I'd imagine the Fed and other CBs would quietly negotiate settlements amongst themselves. Now would be a really, really bad time to have paper AU, be it contracts or a vault receipt.

Now to figure out what happens when the LBMA/BBs and COMEX go boom...

Mon, 04/22/2013 - 00:19 | 3482465 TwoShortPlanks
TwoShortPlanks's picture

Exactly! This is the Unallocated Gold version of Cyprus. Next stop, Allocated Gold!!!

Fed Governor Jeremy Stein said they're on their own now.

The BBs have gone crazy making money on Ponzi-Gold, the Central Banks have turned a blind eye for years however, now they need their Gold back, but the BBs don't have it, and the public are asking questions.

Sucks for some!

Mon, 04/22/2013 - 01:12 | 3482665 Arius
Arius's picture

@seek "Here is where it will get uncomfortable -- Germany, the US, or someone else has lost their gold. I could see major efforts made to keep this quiet and continue to suppress the price so that they can re-acquire physical to replace what is lost."

 

Seek - I think we know how long it takes to replace what is lost given how much is in the market to buy; 7 YEARS, thats how long it will take for Germany to repatriate part of its gold holdings in the US.  It is a lost cause. forget about it.

Maguire explains how the paper markets work where BB can push the price to ZERO if they tomorrow want to, however, where are they going to find the gold to sell at those prices.  A lost proposition.  As you said fractional banking, if someone wants to gamble in the futures market, might as well go to the casino, i would guess the odds are higher there; in the futures market is everything controled since the other guy can see every position in the computer and once in awhile when the fruit is ripe decides to just cut it, and good luck to all those pennies you made along the way...

Mon, 04/22/2013 - 06:54 | 3482965 Gazooks
Gazooks's picture

 ...'BB can push the price to ZERO if they tomorrow want to, however, where are they going to find the gold to sell at those prices'...

They're about as close to zero as they can get now without destroying their pretentious exchange mechanisms.

When physical supply ends, game over. Fundamentals do matter in the real world.

Mon, 04/22/2013 - 08:03 | 3483114 BurningFuld
BurningFuld's picture

Just looking at the Kitco site. Never seen such a small selection of Gold available. They have ZERO Canadian gold coins for sale right now!!!

Sun, 04/21/2013 - 23:21 | 3482491 StychoKiller
StychoKiller's picture

Strange, the ESF (Exchange Stability Fund) is not on your list of manipulators; of course, they stay in the shadows, by design...

Sun, 04/21/2013 - 19:50 | 3481751 knukles
knukles's picture

Talk about talkin' yer very own little very special book.
Nothin' to see, no mystery, golly gosh gee wiz...

Mon, 04/22/2013 - 03:42 | 3482840 fockewulf190
fockewulf190's picture

The Morgue is chock full of pathological liars and thieves! The whole organisation!

Sun, 04/21/2013 - 20:36 | 3481887 caimen garou
caimen garou's picture

+ a gazillion!

Sun, 04/21/2013 - 19:27 | 3481679 DosZap
DosZap's picture

Total sales so far in April are 153,000 ounces, already the highest month since mid 2010, and we still have two weeks to go.

And DOUBLE the previous TWO months.

Sun, 04/21/2013 - 22:24 | 3482332 H E D G E H O G
H E D G E H O G's picture

Would it be asinine for the  'Hog to ask the simple question of not who sold the paper, but who BOUGHT the shit? The answer is the same scumbags, or proxy's, and now it'll be pump it up time, again.

Sun, 04/21/2013 - 19:20 | 3481660 w00dmann
w00dmann's picture

Fortunately I bought gold when it was $200oz which means I'm still way ahead by a factor of...

 

Oh who am I kidding, I bought 2oz at $1700 apiece.  Yay me.

Sun, 04/21/2013 - 19:38 | 3481713 imbrbing
imbrbing's picture

Don't feel bad, I have 5 oz's at that price :) But I still have them, and will for a long long time.

Sun, 04/21/2013 - 20:11 | 3481807 espirit
espirit's picture

One ounce of Au will still buy you a custom tailored suit.

Sun, 04/21/2013 - 20:33 | 3481878 Jendrzejczyk
Jendrzejczyk's picture

We'll all be stylin' in debtor's prison.

Mon, 04/22/2013 - 03:41 | 3482838 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

That was also true at $1900. But the tailor hasn't seen many clients recently so he's lowered his prices. Funny how that works. In A.D. 50 gold bought...one really nice man's business toga.

Sun, 04/21/2013 - 19:56 | 3481767 Kirk2NCC1701
Kirk2NCC1701's picture

If you own paper gold, you can still convert it into phyz, at some conversion cost.

Mon, 04/22/2013 - 03:06 | 3482812 Gavrikon
Gavrikon's picture

And for God's sake, do it sooner rather than later.

Sun, 04/21/2013 - 19:56 | 3481770 GoinFawr
GoinFawr's picture

"Strangers with this kind of honesty make me go a big rubbery one."-Cornelius

Sun, 04/21/2013 - 20:23 | 3481841 Yen Cross
Yen Cross's picture

   I'm floored. GoinFawr,    The master truthiness/  Where have you been for the last yeAR?

Sun, 04/21/2013 - 21:36 | 3482136 WmMcK
WmMcK's picture

Sorry to ask, but does your log-in have anything to do with the great reverser?

Sun, 04/21/2013 - 19:20 | 3481662 kill switch
kill switch's picture

 

It will keep on going up as the demand vs phys is departing especially in silver hahahahaah

 

Silver to $500.00 FRN's

 

Sun, 04/21/2013 - 19:19 | 3481663 francis_sawyer
francis_sawyer's picture

Gold ETFs and gold coin sales in the US. Of course, these only make up a portion of gold demand but the remaining physical demand is difficult to capture on a high frequency basis.

~~~

I promise not to cum on your face sweetie... :-)

Sun, 04/21/2013 - 20:46 | 3481915 toys for tits
toys for tits's picture

 

[T]he remaining physical demand is difficult to capture on a high frequency basis.

Does anyone believe that this wasn't created by design?

Sun, 04/21/2013 - 19:22 | 3481667 newengland
newengland's picture

The most interesting thing about the gold and silver market is that it is a very small market, relative to other markets. The people who move the market speak to each other, know each other, and the interests are beyond gold and silver, and beyond CONgress, Zionists/Islamists, for example.

Sun, 04/21/2013 - 19:24 | 3481671 apberusdisvet
apberusdisvet's picture

Many analysts have commented that the COT report is unbelievable, and probably fraudulent; brought to you by the same criminals at the CME who are obviously in the same ass-fucking daisy chain as the banksters.

Sun, 04/21/2013 - 19:43 | 3481724 YHC-FTSE
YHC-FTSE's picture

Well, if futures are responsible for the sell off, then it looks like the CTFC doesn't want anyone to know why or who did it. They released relief from reporting requirements. 

From: www.natlawreview.com/article/commodity-futures-trading-commission-cftc-s...

Trade Options by End-Users: In CFTC Letter No. 13-08, the Division of Market Oversight (DMO) granted no-action relief from certain reporting and recordkeeping requirements under the trade option exemption provided by CFTC Regulation 32.3 to entities that are not swap dealers or major swap participants (Non-SD/MSP).

Sun, 04/21/2013 - 19:42 | 3481732 AllWorkedUp
AllWorkedUp's picture

Yeah, the CFTC report was a fucking joke. Totally meaningless drivel, no accounting for the 1000 tons of paper gold that were dumped on the paper market in two days.

 Also, great analysis from JPM no doubt, completely honest, no hidden information. Fuck you, JPM, Goldman, Merrill. Nothing will save you fucks.

Sun, 04/21/2013 - 20:24 | 3481849 Bay of Pigs
Bay of Pigs's picture

Maybe we need the PM experts like James Cole and PUD to weigh in on this and enlighten us goldtards?

:/

Sun, 04/21/2013 - 20:41 | 3481899 fonzannoon
fonzannoon's picture

Did James tell us who his dealer is yet?

(gold dealer)

Sun, 04/21/2013 - 20:48 | 3481931 akak
akak's picture

Yes, and here was his response:

Gold dealer

Sun, 04/21/2013 - 20:50 | 3481946 fonzannoon
fonzannoon's picture

I just laughed so hard my wife came into my office and sees me laughing and on my screen is crickets chirping.

I may be going away for a while.....

Sun, 04/21/2013 - 23:29 | 3482507 StychoKiller
StychoKiller's picture

A mind is a terrible to waste(d)! :>D

Mon, 04/22/2013 - 02:39 | 3482794 Rogue Trooper
Rogue Trooper's picture

+1 oz... I lost yet another keyboard to the dangerous combination of coffee in mouth and reading ZH comments :)

Mon, 04/22/2013 - 07:23 | 3483003 Jalaluddin
Jalaluddin's picture

Disconnect keyboard. Run to tap. Turn keyboard upside down. Turn tap on. Shake keyboard vigorously under running water (lots of crud should come out). Can give a last rinse with filtered RO water. Shake to remove as much water as possible. Dry as quickly as possible. Plug in and see if it works. :)

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