Back on April 25, in the aftermath of the latest epic precious metals takedown, we reported that something odd had happened: overnight, total Eligible gold held in the vaults of JPM dropped by 65%, or 260.8k ounces in one day, to a record low of only 141.6K ounces. Contrast that with the 2 million Eligible ounces the JPM vault at the basement of 1 CMP held when it reopened.
Since that moment, many were curious if this may not be the start of the proverbial "run on the vault", and whether JPM's COMEX holdings could actually run out, and if so what happens then. And finally: is the dramatic plunge in gold related to any of this (and certainly to the Bundesbank's repatriation of NY Fed gold for the next five years)? In the ensuing days, JPM's Eligible gold fluctuated in a tight range, until today, when another 22,780 oz were withdrawn from Blythe Masters' metals cellar, bringing JPM's eligible gold to a fresh record low of only 137,377 troy ounces.
But this is only half the story: the details are as always behind the scenes.
Because what the chart above does not show is how, quietly, JPM managed to keep its eligible inventory constant even in light of various withdrawal demands.
The chart below looks at the relative moves in JPM Eligible and Registered gold, starting with the massive withdrawal day, April 25. What is immediately obvious is that the only reason JPM's eligible gold hasn't plunged, is due to the periodic "adjustments" out of Registered into Eligible gold, which on essentially all days in the past three weeks netting out, and for every ounce converted into eligible, one ounce was removed from registered gold.This also explains why even with the three distinct sizable withdrawal days, of 24K, 57.9K, and 22.8K on May 2, May 8 and May 14.
Incidentally, when asked about the rationale behind such seemingly arbitrary reclassifications, and warrant cancellation of registered gold into eligible gold, a market surveillance analyst at the CME replied as follows:
...the adjustment column does reflect the issuance and cancellation of warrants, but it can be used for other purposes as well. Anything that is not received or withdrawn would be reported in the adjustment column.
In other words, JPM and the Comex have full liberty to adjust what is eligible and what is registered, at will, and can thus easily replenish inventory even when it is about to run out.
And run out, it almost would have.
Because if one ignores the 100k or so ounces of Registered gold that were reclassified to replenish eligible inventory, JPM's eligible gold would, as of right now, be down to a negligible 36,931 ounces, or just over 1 ton!
At that point JPM would be down to one withdrawal request away from declaring force majeure on its eligible gold holdings, and all the unpleasant consequences that this would entail for future delivery requests.