Friday, November 15, 2013

The Comex Fraud Is Growing Larger - 69 Times More Paper Than Gold

The information in this report is taken from sources believed to be reliable; however, the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness. This report is produced for information purposes only. 
The above liability disclaimer was added to the Comex gold and silver warehouse stock reports about 5 months ago.  I have a post on this blog about the time it showed up if you need an exact date.  You can see the Comex stock report and disclaimer at the bottom here:  Comex Gold Stock Report

The question I had at the time was, "why now?"   The CME completed its acquisition of the Comex in August 2008.  It took nearly 5 years before the CME's lawyers decided to add that disclaimer to its Comex gold/silver warehouse stock reports.  Having worked on corporate finance deals in my past and knowing how anal and attention-to-deal good lawyers are, I can assure you that it is not some capricious oversight that the CME decided to correct five years ex post facto, as one prominent silver newsletter seller would have us believe.

Here's a graph of the stunning plunge in the "registered" gold sitting in Comex bank vaults - "registered" means gold that has been designated by its legal owners as being available for delivery to holders of futures contracts and has been certified as a bona fide gold bar per Comex standards (source of chart is, edits are mine):
(click on chart to enlarge)

There are 6 entities that operate designated Comex gold vaults:  JP Morgan, Scotia Mocatta, HSBC, Brinks and a small private vault company, Manfra, Tordella & Brookes.   The three banks account for 96.4% of the total amount of gold being "safekept" in Comex-designated vaults.  They account for 78% of the "registered" gold on the Comex.  As you can guess, most of the deliverable gold that has been removed from Comex since April has come from the vaults of JP Morgan, HSBC and Scotia.

The "eligible" gold account is the gold that is being kept for safekeeping at the Comex vaults by investors who theoretically have title to that gold.  For the record,  knowing what I know about big bank fraud, I unequivocally do not believe that the entire amount of gold being reported by the big banks who operate the depositories is actually either physically in the vaults or that it has not been hypothecated via lease obligations by the banks who control the vaults.  If it has been hypothecated, it might actually be there but the owners have lost their physical claim on the metal.  See the court decision in the MF Global bankruptcy if you do not believe me.  The owners of silver held by MF Global were deprived of their bars and are being settled in cash.

As of Wednesday's open interest report for Comex gold futures, there were a total of 403,947 open gold futures representing 40,394,700 ounces of gold.   As of yesterday, there were 587,234 ounces of "registered," available for delivery ounces of gold.  That's a mind-boggling 69x times more open interest of paper gold than available physical gold to deliver to the holders of those contracts.  Think about that for a minute.  If more than 1.4% of those longs stands for delivery, the Comex defaults.

Now, the majority of those contracts  extend all the way out to December 2015.  But there's 166,540 open gold contracts for delivery this December (first notice of delivery is 9 trading days away including today, on November 27).  Those contracts represent 28x the amount of available gold to deliver on the Comex.  If more than 3.5% of those contracts stand for delivery, the Comex defaults.  Historically, maybe 1% of the open interest in a delivery month takes delivery.  The odds are that will be the case this December.  But at the rate that the gold is being drained from the Comex, this is going to be a real problem in the future.

Now we know why Germany wants its gold back, why the Chinese and other BRIC countries are loading up on gold and demanding delivery and why the owners of Comex gold are taking delivery off the Comex.  The Comex is a giant Ponzi scheme.   "In paper we trust" is the motto of anyone who has a long position in  Comex futures OR who safekeeps their gold at Comex vaults.

As for the truth in reporting issue, does anyone out there besides Ted Butler actually trust those banks to  send computer-generated reports that are accurate and honest to the CME.  Have these big, Too Big To Fail bailed out banks given us any reason whatsoever to trust them?   Ya, neither does the CME apparently, which is why they stuck that disclaimer on the inventory reports in June.  In fact, we know that both HSBC and JPM have several criminal investigations for fraud and market manipulation going on against them by the "regulatory" authorities in both the UK and the U.S.  They have both settled numerous others with big cash payments to make the charges go away.

I can walk anyone carefully through JP Morgan's SEC-filed financials to show them where JP Morgan is committing fraud in reporting its financials to the SEC.  I guess Butler trusts those financial filings just like he trusts the reports on open interest and warehouse stock filed with the CME by JPM, HSBC and Scotia.

I do not trust those reports and neither should you.  The Comex is living on the life-support of those who still trust them enough to conduct business on the Comex.  Sooner or later that trust will be shattered.  Judging by the current drain of gold from the Comex and from GLD, "later" is probably not too far away...When that happens, the world price of gold will go "bid without" (meaning all buyers, no sellers) and the dollar will drop off a cliff.


  1. A manufactured crash in the price of gold. Dave take a look at this article. When you have time I would appreciate your thoughts. Thanks.

    1. Saw it yesterday. Research Gary Savage's track record over the last year and then tell me what you think!

      Listen, everyone needs to stop reading every god damn article that comes out for free. Instead, everyone needs to form their their view based on what can be known from looking at as many facts as you can put together, and combine that experience/instinct to for your conclusion.

      Anything I post regarding the direction of the price of gold is my view based on 30 years of experience in all aspects of the financial markets + 13 years of devoting 90% of my professional time to this sector.

      If you notice, I have not offered any recent views on where gold is going because the degree of Govt/Central Bank intervention has made it impossible to forecast with any kind of reasonable confidence.

      But also please note that offsetting the Fed/ECB/UK paper price suppression is the fact that Asia + the BRICs are buying a RECORD amount of physical that has to be delivered.

      So Savage is clearly not taking that factor into account. Can the western bullion banks pull off the stunt Savage describes? Maybe. But you need to buy that with both hands until you have so much fear that you can't sleep at night.

      All Savage is doing is fueling the naive reader's fears and trying to drum up interest in his pay services. His view currently reflects that of the majority of the market which leads to believe that scenario likely won't happen.

      But I don't know and neither does he.

      What I do know per my post today is that at some point in the future the Comex will become comletely irrelevant and the manipulation will fail. Gold then goes bid without.

    2. thanks for the much needed clarification on Gary Savage (Toby Connor). his superficial day trader analysis has received much undeserved attention and is consistently and fundamentally in error. as you have stated, your analysis drills down into the nuts and bolts of fundamental economics. the gold community is filled with these irresponsible and lackluster writers. you are correct in suggesting that an analysis of their past performance is riddled with inconsistencies and downright faulty prognostications which pander to the confusion, fear and hysterical expectations of the many fools who subscribe to their dubious and even harmful services. thanks as always for your well reasoned, always reliable, and rock solid work.

    3. Absolutely, Gary Savage's track record over the last 5 years is terrible. The number of red lines he draws on his charts showing doom in the dollar are only matched by the number of people who believe in his red lines.

    4. Hi Dave, you mentioned the physical flows heading east while the west's paper gold market tanks. I think it is key to understand that the remarkable drawdown of physical gold from GLD is indicative of a bull market in physical while paper gold (the west's obsession) is about as bearish as a market can get. I think this ends when a LARGE delivery request (redemption) is unable to be fulfilled. At that point this paper gold market completely loses credibility.

  2. New York Sun: Reject Yellen for opposing audit of Fed

    Janet Yellen's nomination for chairman of the Federal Reserve Board should be defeated, the New York Sun editorializes, because of the opposition she expressed today in congressional testimony to a full public audit of the Federal Reserve.

    "What needs to be confronted," the Sun says, "is the scandal of Federal Reserve independence. Where in the Constitution does it say that monetary policy is supposed -- or permitted -- to be independent of politics? If the Founders had wanted the monetary power to be given to a body independent of politics, they could have given it to the Army or the Navy or the Supreme Court. But they sat down in Philadelphia and gave the power to 'coin money and regulate the value thereof and of foreign coin' to, in the Congress, the single most political institution in the entire constitutional system.

    "So where in the world does Mrs. Yellen come off lecturing the Congress on the need for independence? It's not as if independence and opacity have produced much in the way of results."
    why is everyone afraid of an audit?

  3. Economist Attacks Ron Paul

    In the piece, Dr. Paul explains how the chained CPI "is an effort to alter the perceived impact of inflation via the gimmick of 'full substitution.''"

    pretty soon the concept of "utility" will be brought to bear on the crimex....we'll see how many people are going to feel better off with a paper claim.

  4. Thanks Dave. While I, and no doubt many of your readers share your basic perspective on what is transpiring, your experience and in-depth understanding of the markets helps to illuminate certain dark corners, and that effort is much appreciated.

    I tend to avoid (or downgrade) the opinions of those who are attempting to time the impending crisis, and for obvious reasons. Having said that, however, I see no way that a major crisis can be avoided, nor do I believe that the balls can be kept in the air for much longer.

  5. Conspiracy for Sale $831M
    COMEX gold inventory on November 8th was 19.9 tonnes which amounts to $830M at $1,300 per ounce. So if someone purchased $831M of gold futures and stood for delivery of all 19.9+ tonnes the COMEX would be forced to settle some of those futures in cash. When the COMEX paper gold market is shown to have no physical gold backing it the price of physical will jump and reveal the gold price suppression conspiracy. Cash settlement will likely be at 'before' prices. But the buyer will realize a nice gain on the physical gold that they were able to receive and get their money back on the ounces that are cash settled.

    Surprisingly no ambitious hedge fund has tried this yet. Since most hedge funds have about 4:1 leverage it would take them only $170M of equity. Didn't Steve Cohen of SAC Capital just sell some artwork for a couple hundred million? What is keeping George Soros, Kyle Bass, John Paulson, Carlos Slim or some other 21st Century version of the Hunt Brothers from giving it a go? They've thought of it - or I charge only a small finders fee, just enough to wet my beak!*

    1. Speculators always have much more fiat than gold. To them the amount of gold may be peanuts. They know there is not enough gold to save their fiat capital by buying gold. So their strategy is to protect their "assets" by "ignoring gold" until they have bought enough jewels.

  6. I have wondered about the reasoning of import duties applied to gold bound for India. Is is possible that India caved in to pressure from western governments, lest the imports of China and India combined break the LMBA? I have been wondering this for some time and have recently encountered the same opinion elsewhere on the web in the last couple of days. Is it possible that India was strong-armed just to keep the ponzi going a bit longer?

  7. (Quinn in Littleton)

    Dave: I tried to post earlier, but my google account didn't seem to work.

    I think what you touch on was the plan all along here. I know it has not made sense to anyone that the price of metal has been plummeting in light of huge declines in the COMEX inventories, but it certainly would make sense if the banks were planning on an imminent cash settlement.

    My guess is that the big banks met with Obama in April and informed him that there could be cracks in the gold market and that they would be unable to settle all of the outstanding claims at current prices. An attack on gold was orchestrated to lower the price to a point where cash settlement would be possible without breaking the banks. I would not be surprised to see the physical gold market seize up or trade at significantly higher prices to the quoted price in this scenario. I also wouldn't be surprised to discover that the real physical gold was leaving the COMEX and heading straight to an offshore bank subsidiary prior to cash settlement. Another and FOA talked about a divergence in the physical and paper market and cash settlement would certainly prove them correct. Q

    1. Obama is nothing but a figurehead. He's clueless on financial markets and the only gold he's ever touched is the fake gold bling he wore around his neck before he was groomed to go to Harvard.

      My best guess is that the BIS played a heavy role in India's decision to restrict gold imports right before the massive autumn gold-buying season there. It will be interesting to see if it costs the current Government their seats next year because of this when they are up for election.

      Obama has no role in the the big decisions that get made. His role is to read the teleprompter and sound like Martin Luther King and not improvise, like Bush did occasionally and ended up stepping on his dick whenever he tried to be cute or look smart.

    2. Dave: Don't get me wrong. I don't think Obama was the one calling the shots in April. I think he was taking orders. More of a this is what we are going to do so if for some reason we get in trouble call off the dogs type discussion. I know without reservation that Obama is not calling the shots on anything that matters. Q

  8. I wonder, though, if the continued QE is causing a problem for banks in obtaining quality collateral. Why have there been gold price smashes (paper gold) while demand from Asia increases and physical gold stock drain from Comex and GLD and other ETF to vaults in Asia? It’s easy to blame “manipulation” but who would dump large quantities of gold at one time and expect to profit again and again? Of course, I wouldn't be surprised at shenanigans by bullion traders, but I think there is something more at work. Your thoughts?

    There seem to be massive stresses in the financial system due to a lack of quality collateral. Banks may be reaching for gold to use as collateral thus increasing gold leasing—putting pressure on the paper gold price. Then when the GOFO rates goes negative (into backwardation) physical demand asserts itself and gold rallies.

    As an analyst writes, “It was only in early 2008 that gold collateralized lending took on the emergency proportions that we saw in the gold “smashes”. Given the shrinking collateral environment coupled with the effective closing of unsecured interbank lending markets (beginning in August 2007), banks are navigating a liquidity system that is nowhere near certain. Add in the pressures of QE (or LTRO’s in Europe) on collateral chains, and gold’s appeal in lending markets is more obvious.”

    See charts showing rising GOFO rates preceding gold price smashes.

    I seek anyone's thought on this. QE, global money printing and lowered interest rates may be depressing the gold price counter-intuitively in the SHORT-TERM while increasing the imbalances long-term. Own physical bullion and pray for price declines to add.

    1. They have infinite paper available to them...they move and create the line...for now.

      Presenting self-securitization.

      What is "self-securitization"? Go ahead and Google it: there doesn't exist any technical definition of this heretofore unheard of phrase.

      Rather the term, conceived by the FSB as a means of making the total size of the $71 trillion shadow banking sector somewhat more palatable, is defined as follows:

      Self-securitisation (retained securitisation) is defined as those securitisation transactions done solely for the purpose of using the securities created as collateral with the central bank in order to obtain funding, with no intent to sell them to third-party investors. All of the securities issued by the Structured Finance Vehicle (SFV) for all tranches are owned by the originating bank and remain on its balance sheet.

      At this point alarm bells should be going off. And if they aren't, here is some more color.

      The numbers for OFIs presented in sections 2 to 4 of this report include all financial assets of Structured Finance Vehicles (SFVs), regardless of who holds the securitised products. However, in a number of jurisdictions, some of these products are returned back onto the balance sheet of the bank that originally provided the asset to be securitised. This so called self-securitisation, or retained securitisation, is defined as those securitisation transactions done solely for the purpose of using the securities created as collateral with the central bank in order to obtain funding, with no intent to sell them to third-party investors. All of the securities issued by the SFV for all tranches are owned by the originating bank and remain on the bank’s balance sheet, so that third-party investors do not own any of the securities issued by the SFV. These assets should not be included in the shadow banking figure, as prudential consolidation rules consider them as banks’ own assets and as such subject to consolidated supervision and capital requirements.

      ... some of the assets that are currently ‘self-securitised’ by banks may at some point be sold to third parties when financial conditions improve.

      Wait a minute: a company is "securitizing" assets.... which it then keeps, but only after it has "obtained funding with a central bank"? What?

      Answer: $1,200,000,000,000.

      That is the amount of unlevered notional that shadow (and regular) banks engage in circular check-kiting games with central banks for, and in the process obtaing "funding." As one trading desk explained it:

      you take yr worst assets... package up in an spv (which removes em from yr gaap balance sheet) then flip to central bank for cash at modest haircut and boom revenues...

      And presto: magic balance sheet clean up and even more magical "revenues."

      But wait, there's more (spoiler preview: take the above quote and put in on constant rewind)

      Where this mindblowing, circular scheme in which riskless central banks serve as secret sources of incremental bank funding, i.e., free money, gets completely insane, is the realization that these self-securitized assets can also participate in rehypothecation chains. Recall from our exposition yesterday on the permitted leverage resulting from collateral reuse in a repo chain which is fundamentally what shadow banking is all about: unregulated, stratospheric leverage.

  9. Dave, I don't think the 69 ratio is relevant. The total open interest on the Shanghai Futures Exchange for gold as of Friday was 151526. Since the SHFE reports the open interest as the sum of both longs and shorts, that's 75.763 tonnes of gold. However, if you look at the gold stock at the SHFE, there is only 375kg of gold. The paper/stock ratio is 202...

    1. LOL! Yes, and Bernanke said he didn't see a problem with subprime loans before they nearly took down the entire global economy.

      The point is that these clueless nitwits sitting behind their computers and models can't see the forest for the trees. You're dealing with a system built by humans, operating on a great deal of blind faith. It's when that faith is tested and proven egregiously wrong that all hell breaks loose. A point which you seem to miss entirely.

  10. genetic testing

    They now want to test people's DNA to see what drugs would be best for their bodies health. This came up in the late 1990's when Clinton was Prez but big corporations wanted to use it as a screening test as they only wanted long-term health employees that wouldn't bog down their medical insurance they were offering, i.e. soviet-style deciding what future you would have - a doctor or a peasant for life.

  11. As U.S. taxpayers expatriate at record rates, some experts say a complex IRS tax code could be to blame.

    So far this year, 2,369 people have either given up their U.S. passports or surrendered their green cards after long-term residency, according to Andrew Mitchel, a tax lawyer in Centerbrook, Conn., who watches the data closely

    Experts say an overly complex tax system could be driving some Americans to throw in the citizenship towel. Some expatriates are also subject to an exit tax.

    Mitchel attributed part of the exodus to "the IRS cracking down on people with overseas accounts."

  12. A gold vault that can store 2,000 metric tons, double China’s projected consumption this year, opened in Shanghai this month as owner Malca-Amit Global Ltd. seeks to benefit from rising demand in Asia’s largest economy.

    The facility is the biggest for the Hong Kong-based company, and it can also store diamonds, jewelry and art, Joshua Rotbart, precious metals general manager, said in an interview. The site could hold bullion worth about $82.5 billion at today’s price, Bloomberg calculations show. China’s total demand may reach 1,000 tons in 2013, the World Gold Council forecasts.

    Consumption in China may increase 29 percent to a record this year, overtaking India as biggest user as lower prices and higher incomes spur demand, according to the WGC. The investment in Shanghai’s new free-trade zone reflects a shift in world demand away from the U.S. and Europe toward Asia. Demand for gold jewelry, bars and coins in Greater China, India, Indonesia and Vietnam is now about 60 percent of the global total, up from 35 percent in 2004, according to HSBC Holdings Plc.

  13. Wal-Mart Stores Inc on Thursday reported its third straight quarterly decline in U.S. comparable sales, hurt by a drop in shopper visits, and the world's largest retailer gave a disappointing profit forecast for the holiday season...

  14. The U.S. trade deficit widened in September as imports rose to their highest level in almost a year and exports fell for a third consecutive month, suggesting the third-quarter growth estimate will probably be lowered.

    Other data on Thursday painted a less upbeat picture of the labor market than had been suggested by last week's sturdy October payrolls report. First-time applications for jobless benefits fell last week, but the decline in claims for the week ended November 2 was smaller than previously reported.

    "The reports reveal a slightly weaker path than we expected for exports and claims levels, which has modestly downgraded the outlook for the economy," said Mike Englund, chief economist at Action Economics in Boulder, Colorado.

  15. A new report from the McKinsey Global Institute examines the distributional effects of these ultra-low rates. It finds that there have been significant effects on different sectors in the economy in terms of income interest and expense. From 2007 to 2012, governments in the eurozone, the United Kingdom, and the United States collectively benefited by $1.6 trillion both through reduced debt-service costs and increased profits remitted from central banks (exhibit). Nonfinancial corporations—large borrowers such as governments—benefited by $710 billion as the interest rates on debt fell. Although ultra-low interest rates boosted corporate profits in the United Kingdom and the United States by 5 percent in 2012, this has not translated into higher investment, possibly as a result of uncertainty about the strength of the economic recovery, as well as tighter lending standards. Meanwhile, households in these countries together lost $630 billion in net interest income, although the impact varies across groups. Younger households that are net borrowers have benefited, while older households with significant interest-bearing assets have lost income.

  16. Maybe after exporting our jobs, maybe now we are exporting our wealth to asian countries. They have our production/industry model - we train them in it. When jobs are outsourced, a team from the company goes there with them. Now its wealth. Eventually, this country will have no industry, unmanageable poverty, and worthless US paper.

  17. "Wall Street traders will have to wait until next week to don their commemorative "Dow 16,000" baseball hats, but both the Dow and the S&P did end the day at record highs.

    The Dow Jones industrial average, the S&P 500 and the Nasdaq all posted gains of more than 1% for the week.

    The Dow is closing in on 16,000, while the S&P 500 ended a few points shy of 1,800, which would be the first time for both. The tech-heavy Nasdaq is nearing 4,000, a level not seen since September 2000, just after the collapse of the dot-com bubble.

    Some believe stocks can continue moving higher in the short run as investors who have sat out the rally so far rush to get in before the party's over."

    Well, Dave, you're right - looks like the party will be over soon. The Fed can push down Gold but we have all learn from 2008 crash that they cannot control a runaway stock market train. Remember "back to the future 3" with special wood was put in the furance to get the train up to 88 MPH? It all explodes as it went over the cliff. it's just a matter of time.

    1. I'm not sure the party will be over soon. Suppose the Fed automatically buys stocks to raise the Dow at a preset daily level increase. That wouldn't cost too much. If they would need a piece of software to perform a task like that, it wouldn't take me more than an afternoon to program the code. However the Fed probably already has such tools for the stock, the bond and the gold/silver market.

  18. "Hundreds of thousands of retired union workers are facing pension cuts that could slash their monthly payments in half — or even more.

    The proposed cuts are part of a desperate effort to head off insolvency at multiemployer pension plans, pensions that typically provide benefits for workers at several companies.

    It's an unconventional move: Pension law has long maintained that cutting the benefits of those already retired is off-limits. Current law allows troubled multiemployer plans to reduce the benefits that employees earn going forward, cut early retirement and disability benefits and hike employer contributions instead.

    But things have gotten so dire that a coalition of employers and labor unions is asking Congress to change the law."

  19. West To East Gold Distribution Update
    Just the official route has brought 826 tons of gold to China year to date, annualized 1100 tons. If we add 400 tons Chinese mining supply the total is 1500 tons that will meet demand.
    Whilst the World Gold Council estimates Chinese consumer demand will be over 1000 tons, my estimate is it will be over 2200 tons. In my humble opinion just the official route raises a few eyebrows to the WGC demand numbers. If we then take into account gold is also imported by China through other ports than Hong Kong, more eyebrows are raised.
    In a future post I will describe in detail how I calculated my estimate.

  20. Well done Dave keep these gems coming. Clever people don't do these things by accident.

  21. Bloomberg Cans Reporter Who Talked About Editors Killing China Story

    Bloomberg News is clearing house in the wake of a series of embarrassing leaks that revealed the would-be news agency killed stories to win the favor of the Chinese government.

    The Post is reporting that journalist Michael Forsythe has been placed on an "unpaid leave of absence" after it was revealed that he was one of the reporters who spoke to the New York Times after the Bloomberg News editor-in-chief killed a story he had been working on for almost a year. Forsythe was escorted out of the Hong Kong office on Thursday.

    The story would have run during the same month that the chief executive of Bloomberg (the non-news side of things) is visiting China to strengthen business ties between the media-sensitive country and the financial services company. And while Bloomberg LP might be looking to broaden its business, Bloomberg News is reportedly about to significantly downsize.

    According to The Post, between 50 to 100 staffers will soon be laid off from the news company, including several investigative reporters. Apparently, they were bad for business.

  22. Hi Dave,

    Your write;
    ''When that happens, the world price of gold will go "bid without" (meaning all buyers, no sellers) and the dollar will drop off a cliff.''

    I say; When that happens, the world price of gold will go "bid without" (meaning all buyers, no sellers) and the most Fiat currencies will drop off a cliff