JPMorgan Just Cornered The Commodity Derivative Market, And This Time There Is Proof

Tyler Durden's picture

For years there had been speculation, rumor and hearsay that JPM had cornered the US commodities market. Now, finally, we have documented proof.

* * *

Traditionally, we look at the OCC's Quarterly Bank Report on derivatives activities to see which was the largest bank in the US in terms of total notional derivative holdings. The reason being that like on frequent occasions in the past, we find some stunning  results, such as most recently in January when we wrote that, for the first time, Citigroup had eclipsed JPM as the largest US bank in total derivatives, with just over $70 trillion compared to perennial megabank JPM's $65.3 trillion as of the third quarter of 2014, explaining also why Citigroup had drafted the Swaps push out language in the Omnibus Bill.

 

And while this time there was little exciting to report at the consolidated level (JPM overtook Citi in Q4 only for Citi to once again become the world's largest bank in total derivatives with $56.6 trillion compared to $56.2 trillion for JPM and $52 trillion for Goldman as Bloomberg reported earlier), and in fact total notional derivatives tumbled from $220.4 trillion in Q4 to $203.1 trillion in Q1 the lowest level since 2008... 

... an absolutely shocking blockbuster emerges when looking at the underlying component data.

Presenting Exhibit 12: Notional Amounts of Commodity Contracts by Maturity: even a CFTC regulator would be able to spot the outlier charted below.

 

What the chart above shows is that after fluctuating around the low to mid $200 billion range for the past 5 years, in Q1 the amount of Commodities with a maturity of under 1 year exploded to a record $3.9 trillion!

Sadly, the OCC provides no actual explanation for why there was such an epic surge in commodity derivatives within the US banking system in the first quarter, so we decided to explore.

What we found is what those who have for years accused JPM of cornering the commodity markets, have known: because it is none other than JPMorgan's Commodity derivative book primarily in the <1 maturity bucket, which exploded from just $131 billion to a gargantuan and never before seen $3.8 trillion!

In fact as the chart below shows, while historically JPM has accounted for just over 50% of total commodity holdings among all US commercial banks, in the Q1 this number soared to a stratospheric 96% which by anybody's standards is the very definition of cornering the market!

 

We don't know what prompted JPM's derivative book to soar to such a never before seen amount, but the number most certainly looks abnormal on both an absolute and a relative basis, especially considering that no other banks boosted their particular derivative book with the same vigor.

So what is going on here?

We decided to dig down some more when we encountered something even more perplexing. Because whereas in previous quarterly updates, the OCC broke out the FX and Gold categories as separate derivative items as seen in this most recent chart from the Q4 update...

... in Q1, once again quite inexplicably, the OCC decided to lump these two products together, thus making any credible observation about the total notional outstanding of just gold derivatives, impossible! But wait, we thought that according to former Chairman Bernanke, gold anything but currency: is the OCC suddenly disagreeing with that assessment?

 

Furthermore, while in all previous iterations of the OCC's Table 9, gold derivative notionals by maturity were explicitly broken out as can be seen in this Q4, 2014 table below:

 

Starting in Q1, 2015 the "gold" section in Table 9 no longer exists (although we can see that while JPM cornered "commodities", it was Citi that had its total derivative notional of "precious metals" undergo a massive jump, also for reasons unknown).

One would almost think the OCC is hiding something as the demand of US commercial banks. So while we no longer know what just total gold derivatives outstanding is, for some unexplained, reason, we do know that the combined total of FX and gold just hit an all time high.

* * *

And while the OCC did all it could to mask the "gold" line item by lumping it with FX, it still kept "Precious Metals" as is, although we assume that this too will be lumped with FX and gold shortly.

It is this chart that shows something is truly odd when it comes to the US commercial bank industry's activity in the precious metals space.

 

So in summary, this is what we do know:

  • in Q1, JPM cornered the commodity derivative market, with a total derivative exposure of just over of $4 trillion, an increase ot 1,691% from just $226 billion in one quarter!

What we don't know is:

  • why did the OCC decide to effectively eliminate its gold derivative breakdown by lumping it with FX,
  • why there was a 237% increase in the total amount of precious metals (which include gold) contracts in the quarter, from $22.4 billion to $75.6 billion

We have sent an email requesting much needed clarification from the Office of the Currency Comptroller, although we are not holding our breath.

Source: OCC’s Quarterly Report on Bank Trading and Derivatives Activities  First Quarter 2015

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GRDguy's picture

Are people really that stupid???  Customers of JPMorgan backstop customers of Citi, and vice versa, with both sides paying commissions.  No wonder the ball settles on 00 so often, where neither black nor red win.  Gold and silver is like cashing in the markers and leaving the casino.  The roar of the crowds certainly are tempting, but when the doors close, the markers are worthless.  For a casino to survive, your money must be in their markers.  How dare you cash out and leave the building.  That's why they hate gold and silver so much. 

Something Wonderful's picture

The Man owns the markets. Clowns us mortals and wants to flush all all down into a the same Grecian toilet. If this were musical chairs and you didn't get a tap on the shoulder or whatever they do at some Ivy League secret society...the only chair for you is a commode and your place on it is to be flushed. 

"It's a Cookbook!"

https://www.youtube.com/watch?v=NIufLRpJYnI

22winmag's picture

WWI for the U.S. started largely because of illegal JPM steel and arms financing.

 

Must feed the war machine.

Stud Duck's picture

The end is near,  very near! They will blame it on the Greeks and the Gooks this time!

TeethVillage88s's picture

Well why not the Greek Communists since that seems to be their main complaint.

1. People don't matter
2. Wars happen all the time, they aren't fair, they are messy, and we don't publish the bad statistics
3. Economic Crashes happen all the time, they aren't fair, they are messy, and we don't publish the bad statistics
4. Fraud happen all the time, they aren't fair, they are messy, and we don't publish the bad statistics
5. Insiders get protected all the time, they aren't fair, they are messy, and we don't publish the bad statistics
6. Financial Ratings are corrupt they happen all the time, they aren't fair, they are messy, and we don't publish the bad statistics
7. Black Mail happen all the time, they aren't fair, they are messy, and we don't publish the bad statistics
8. Courts are influenced, Congress & Parliament are influenced by money all the time, they aren't fair, they are messy, and we don't publish the bad statistics

The other PIIGS play well with US/EU/NATO/Central Banks. Otherwise Ireland would be the Target of EU, followed by Spain who borrowed to keep it's government going more than anything else.

TheReplacement's picture

I can't believe you just called them Gooks.  How dare you.  Don't you know they are Chinks, not Gooks?

rbianco3's picture

-> This is the smoking gun that says life is going to suck (a lot worse than now) within one year or less.

-> OR, this is nothing too important, data read incorrectly, a mistake or a psy-op planted for someone brilliant to find. Que the Twilight Zone music.

fremannx's picture

The biggest, most impressive sign that the debt bubble has finally burst...

http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...

fiatmasochist's picture

...wow...this guy is shutting down due to emminent collapse! Truthseeker! check it out

Troy Ounce's picture

 

I heard that the last words of the Mayor of Hiroshima were: "What the f...".

 

 

Something Wonderful's picture

Not to make light of it, but it is scary if they are controlling the markets, the military, the news, etc.

TeethVillage88s's picture

Why did Goldman and Morgan need to become FDIC insured?
They were huge in getting their money from money-market funds. That was cheap, but uninsured and the average maturity was at best 30 days. Both Goldman and Morgan needed long-term capital to play with. What they needed were bank deposits from the average person to keep the game
going. The business model was changing, and they saw the light, and stole the idea from Lehman.

Page 6
http://www.armstrongeconomics.com/wp-content/uploads/2012/03/looking-beh...

Seems to fit what you all are talking about.

NoWayJose's picture

When life gives you a lemon like JPM crushing PM prices, make your PM lemonade stack higher.

WillyGroper's picture

They're gonna steal it all.

Here's some fascinating research, stifled of course.

Check out the group of 30 rabbit hole & you'll see where we're going.

http://silverstealers.net/

Even supressed by GATA.

rbianco3's picture

I didn't have time to read, but I'm assuming that if you are holding physical it will be more difficult for them to steal it. I wouldn't own PM's unless I had that PM in my hand.

eddiebe's picture

 

  • "why did the OCC decide to effectively eliminate its gold derivative breakdown by lumping it with FX,
  • why there was a 237% increase in the total amount of precious metals (which include gold) contracts in the quarter, from $22.4 billion to $75.6 billion"

       I assume that is a rhetorical question.

TeethVillage88s's picture

Federal Debt Held by Foreign & International Investors as Percent of Gross Domestic Product, 2014:Q4: 34.75940 Percent of GDP, HBFIGDQ188S,
http://research.stlouisfed.org/fred2/series/HBFIGDQ188S

Private Credit by Deposit Money Banks and Other Financial Institutions to GDP for United States, 2011: 189.51640 Percent,
http://research.stlouisfed.org/fred2/series/DDDI12USA156NWDB

http://www.bea.gov/newsreleases/international/intinv/iip_glance.htm (wow huge trend, $31 Trillion in Foreign Property owned in USA vs $24 Trillion US owned Property in Foreign Countries)

There Will Be Blood.

Wealth is Transferring without Regulation or Governor, but it is going overseas since the cover is foreign trade.

Current Account Balance: Total Trade of Goods for the United States©, 2013: -703,911,000,000 US Dollars,
Sum Over Component Sub-periods (2013 was last data),
http://research.stlouisfed.org/fred2/series/BPBLTD01USA637S

VWAndy's picture

Not being an expert on this stuff. If you had access to the printer what would you be buying? A. Every thing in the world!

tool's picture

Just a note to any ZHer's working in Australia who has money in the compulsory super scheme. Now might be a good time to start a SMSF with a deed that allows investment in PM's

 

Oh and before I forget fuckyou Glenn Stevens. Hay Yellen can't get all the love.

 

silvertri's picture

totally agree tool had my own smsf for 10 years, made and lost a fortune in pm shares, this has been a long time coming , seen skase's videos? he's right they will enforce mandatory investment guidelines so they can access the big funds to keep the ship afloat as long as possible. In short we are fucked ....Shorten or Abbott? doesnt matter....

 

silvertri's picture

totally agree tool had my own smsf for 10 years, made and lost a fortune in pm shares, this has been a long time coming , seen skase's videos? he's right they will enforce mandatory investment guidelines so they can access the big funds to keep the ship afloat as long as possible. In short we are fucked ....Shorten or Abbott? doesnt matter....

 

tool's picture

For sure what Gov can resist Trillion's just sitting there crying out to them look at Japan the majority of their debt is held domestically. They'll just sell as investing in the countries future when the debt is so high no one else will finance it. Big super funds are easy targets SMSF are going to be a lot more tedious to get and remember people with influence will also have SMSF, don't want to piss them off. Imagine the Gov says we need you to either divest you gold holdings or make the GOV custodian's my answer will be sorry but as thee trustee that would not be in the best interest of the fund members now FUCK OFF.

emorybored's picture

Gold was being bid around the world yesterday/night, then it hits US shores and dumps. How queer.

JLM's picture

Where's that guy that "likes to be a pig sometimes" when you need him.  He could take the other side and blow it out of the water and make himself famous twice over.  He must be getting soft in his old age.... . lol 

honestann's picture

Please explain.

-----

#1:  Does this mean there are now vastly more contracts that require people to deliver physical gold to JPM this year?

#2:  Or does this mean there are now vastly more contracts that require JPM to supply gold to others this year?

#3:  Or does this just mean there are lots more contracts, and they may be just as many longs and shorts?

#4:  Or something else?  If so, what?

besnook's picture

i think it means they anticipate some event that requires the pm market to be tightly controlled and used as as a hedge against some pending economic disaster.

rbianco3's picture

Would it also imply that the pending event will occur soon and will be completed within one year?  Wow, now THIS is some scary stuff. I've been reading some of the fringe news and trying to determine if there is any truth to the planet x talk- an event like that would most definitely require control of PM market, but so would the collapse of currencies (Euro, Dollar, etc.).

Bottom line is this is some pretty solid evidence that "something" very serious is going down in one year or less. 

Fu..dge

Downtoolong's picture

It means there are vastly more paper contracts to buy and sell outstanding than there is physical gold. That's true with most commodities. So, if every buyer could and did try to take physical delivery, some sellers would default fault on their obligation. The market is inherantly short the underlying physical.

It gets even more interesting when you realize that many derivative contracts are indexed to the price of other derivative contracts. For example, an OTC swap in gold might be priced and settled on a gold futures contract. That creates a huge incentive to manipulate the price of one derivative in order to change the settlement value of the other. 

 

honestann's picture

So we don't know whether JPM is net short or long?  Can these markets become net long or short?  On the surface, it seems not, because when someone sells a contract to deliver gold to someone else, that someone else has a contract to receive gold.

Or can the market be net long or short somehow?  I'm only talking physical, not paper contracts that settle in paper (like ETFs).

Troy Ounce's picture

 

 

Nailguns?

 

It is not about the nail!

 

https://www.youtube.com/watch?v=-4EDhdAHrOg

FranSix's picture

JP would be well positioned in the event of negative rates in the treasury bill market:

http://online.wsj.com/mdc/public/page/2_3020-treasury.html#treasuryB

Raul44's picture

Very nice article. I think its clear we have been right about gold manipulation from begining. And frankly, I am not afraid of their schemes. I am not afraid of gold to hit 0 or close to, in fact I am not afraid even if by some miracle it would because I know it couldnt last. But they should be very worried about losing control and take a HUGE loss. Good luck to them I say, I already know they cant win this long term.

sudzee's picture

As far as I am concerned there are 2 types of "money". The first is physical silver and gold. Push comes to shove an ounce will always be an ounce  and will have the same utility its had for 5000 years. The second is physical banknotes backed by the faith of consumers and in a push come to shove moment will have utility for a short period of time. Both of these types of money exist as a means to save ones fruits of labour for use in the future.

The debt Ponzi is simply a derivative of money. The Ponzi requires everyone to be all in to the game and survives mainly on the c/b and political  propaganda. The war on PM's and physical cash is a desperate ploy by TPTB to stop the slow leak of money 1 and 2 from escaping control. Control of the debt ponzi has been easily controlled until recently when Russia, China and other buyers of size realized the more real money they could accumulate the more they could create an out of control debt leverage situation among western c/b's. Maintaining to debt ponzi requires vilification of those who are gaining control.

Average joe worldwide seeking to "save" fruits of labour, money 1 or 2, for the future is being controlled by war on pm's and physical cash. Small potatoes so propaganda scares them into mostly staying in line.

Deep pocket buyers of size, Russia China and others are in the game to win and winning they are. Drums of war beating 24 hours a day at every TPTB controlled media outlet. OMG news like China spying, hacking, building sand castles in the South China Sea is a direct threat to the US. OMG, Russia has 54000 soldiers on the border of Ukraine, but don't bother to mention that it is very natural for Russian soldiers to be on their side of the border. 

Western propaganda is everywhere but many in the west are wakin up to reality. The US/UK/EU ponzi is coming to an end. Gold is still the center of the financial universe. Western c/b's stole and sold the asset to the east to satisfy the contination of its elites. 

 

 

teutonicate's picture
teutonicate (not verified) Jul 1, 2015 5:27 AM

Before I address counterparty risk, I just want to thank ZH for blowing the lid off the regulatory fraud and collusion associated with the COMEX (see other past posts for greater detail).  The collusion with CB's and money center banks to artificially depress the price of PM's and/or insider trade at the expense of the public and smaller traders is a disgrace.

There are a lot of bloggers on this site the firmly believe that stacking physical PM is the best way to play this situation.  It is certainly a good way if you like the ultimate in security and don’t mind some of the expense involved.  There is also a real psychic value with this approach.

The purpose for my post is to emphasize the distinction between the injustice of market manipulation, and the issue of counterparty risk.  I think too many stackers think that the price of physical gold is going to dramatically outperform digital gold some day because of some black swan event associated with the derivatives market.  I don't think that this is a realistic expectation.  At least it shouldn't be the sole reason that they are stacking.

The problem is that the minting, markups and transaction costs associated with this strategy are high, and unfortunately there are some unscrupulous physical dealers that like to exaggerate the counterparty risks (which are real) of futures contracts to take advantage of people and scare them into owning physical, rather than using derivatives – because that is the only way they make money.  If you use this strategy, you should consider the source when you follow advice.

Counter-party risks exist and should not be ignored.  However, to put it in perspective, if you trade PM's at all, want to lower your transaction and holding costs, or want to use any leverage you may want to consider the use of PM derivatives either directly or indirectly through a leveraged PM ETF.

To be honest, the total open interest in PM futures, while large, is still relatively small when compared to the balance sheets of these institutions.  That is one reason that it is relatively easy for them to manipulate the markets, because even if they have significant PM trading losses, they benefit from other effects (such as artificially propping up fiat) that offset these losses.

As physical PM pricing effects (accelerated by developments in China) and volume increase, I think that it will be increasingly difficult to continue to manipulate price with derivatives.  More importantly, I can’t really build a strong case for why CB’s or money center banks would benefit from the destabilization that would occur if there was a major counter-party default in PM futures.  What would be their upside to such an event?  If there is a dramatic increase in PM prices, my read is that the major shorts will take a big hit, but that it will be in their interests to cover the losses, rather than risk the destabilization that would result from not doing so.

Not trying to discourage stacking, just trying to keep it real.

 

nathan1234's picture

I guess most peeople have forgotten the witch Blythe Masters for works for JP Morgan.

Give her the truth serum and lo behold the entire facts ( not story) will unfold.

teutonicate's picture
teutonicate (not verified) Jun 30, 2015 8:42 AM

Before I address counterparty risk, I just want to thank ZH for blowing the lid off the regulatory fraud and collusion associated with the COMEX (see other past posts for greater detail).  The collusion with CB's and money center banks to artificially depress the price of PM's and/or insider trade at the expense of the public and smaller traders is a disgrace.

There are a lot of bloggers on this site the firmly believe that stacking physical PM is the best way to play this situation.  It is certainly a good way if you like the ultimate in security and don’t mind some of the expense involved.  There is also a real psychic value with this approach.

The purpose for my post is to emphasize the distinction between the injustice of market manipulation, and the somewhat related concerns about counterparty risk.  I think too many stackers think that the price of physical gold is going to dramatically outperform digital gold some day because of some black swan event associated with the derivatives market.  I don't think that this is a realistic expectation.  At least it shouldn't be the sole reason that they are stacking.

The problem is that the minting, markups and transaction costs associated with this strategy are high, and unfortunately there are some unscrupulous physical dealers that like to exaggerate the counterparty risks (which are real) of futures contracts to take advantage of people and scare them into owning physical, rather than using derivatives – because that is the only way they make money.  If you use this strategy, you should consider the source when you follow advice.

Counter-party risks exist and should not be ignored.  However, to put it in perspective, if you trade PM's at all, want to lower your transaction and holding costs, or want to use any leverage you may want to consider the use of PM derivatives either directly or indirectly through a leveraged PM EFT.

To be honest, the total open interest in PM futures, while large, is still relatively small when compared to the balance sheets of these institutions.  That is one reason that it is relatively easy for them to manipulate the markets, because even if they have significant PM trading losses, they benefit from other effects (such as artificially propping up fiat) that offset these losses.

As physical PM pricing effects (accelerated by developments in China) and volume increase, I think that it will be increasingly difficult to continue to manipulate price with derivatives.  More importantly, I can’t really build a strong case for why CB’s or money center banks would benefit from the destabilization that would occur if there was a major counter-party default in PM futures.  What would be their upside to such an event?.  If there is a dramatic increase in PM prices, my read is that the major shorts will take a big hit, but that it will be in their interests to cover the losses, rather than risk the destabilization that would result from not doing so.

Not trying to discourage stacking, just trying to keep it real.

 

Bopper09's picture

Good points, but my reasons for stacking silver are

1. Those cocksuckers can't track it or tax it. (Or good luck taxing it in the future)

2. I'm building a pile for future grandkids, assuming one of my 2 girls have them, and unless the financial system collapses and I need it

3. Silver is under the cost of production, and over 70:1 ratio to gold, I'll be trading it for gold if and when that ratio comes down closer to the 50 or 40:1 range.

4. I actually have to thank JPM for giving me silver at such an absurd low cost.  I can trade fake pieces of paper for actual precious metal.  Fiat systems fail 100% of the time in human history.  If you think this time is different then you're a fucking idiot. 

 

surfvin's picture

This is the only story that matters. They simply can't reach their goal of destroying the planet and the human race without the ability to counterfeit the money.

rbianco3's picture

Mr. Durden:  Thank you for your patriotic service to humanity. This is one big old nasty turd you uncovered!  

This is so big and stinky I don't think MSM can ignore it. I can't even think of the lies they would use but they could always ask Hitlery.

Be safe! 

 

 

PleasedToMeatYou's picture

Actually, I think they can do worse than ignore it.  They can publish/broadcast in a glossed over, technical way so as to make the vast majority snore - hidden in plain sight. 

sudzee's picture

Is JPM setting up the biggest short of the century. If Greek debt causes a domono effect in derivatives worldwide, gold will necessarily need to be slaughtered as an alternative to fiat?? 

Is the FED fronting JPM in order to try to bring down China And Russia??

Just a thought but if PM's take a huge dip on no news you can bet the plan is on course.

golden raccoon's picture

According to the OCC, notional precious metals (ex gold) derivatives held by U.S. banks increased from $22.4 billion in Q4'14 to $75.6 billion in Q1'15.  Q1'15 notional gold derivatives were not reported (they are now combined with fx derivatives), but had they increased at the same rate as notional precious metals (ex gold) derivatives, they would have gone from $83.9 billion in Q4'14 (which was reported) to $283.2 billion in Q1'15, adding 5,164 notional tons to the Q4'14 notional amount of 2,175 tons. 

Total COMEX gold futures contracts open interest yesterday totaled 1,379 tons.

Welcome to the gold "market".

RMolineaux's picture

It is curious that JPM is also hoarding physical silver.  Maybe put the two together and you have a slightly more sophisticated Hunt brothers situation all over again.  Silver takes up more space than gold. Maybe they will have to rent vault space from the NY Fed.  Lol.

Maestro Maestro's picture

If actual transactions are taking place between buyers and sellers in a (real) market, there cannot be more buyers than sellers and vice versa.

If JPM represents more than 50% of either buyers or sellers, than, by definition, they are selling to themselves or buying from themselves -- which is FRAUD as the COMEX is a price-setting market.  In other words, by the FACTS acknowledged and announced by the US regulators, the US government, the FED and Comex, our entire financial system is a criminal enterprise and our government consists of criminals.

The Americans are stupid.

The Chinese are stupid.

The Russians are stupid.

YOU are stupid.

 

Happy 4th of July!