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July 9, 2019 | A Pretty Ugly COT Report in Gold

"Ed wrote the daily precious metal commentary for Casey Research starting in 2008. His stand-alone column became their most highly-rated blog [either free or paid] almost from the outset—and remained that way until he started his own subscription-based website in June of 2015."

09 July 2019 — Tuesday


The gold price was sold lower just a few minutes after trading began at 6:00 p.m. EDT on Sunday evening in New York.  It began to recover about fifteen minutes later — and managed to crawl higher…back above the $1,400 spot mark.  The high tick was set a few minutes after the London open — and it didn’t do much from there until ‘da boyz’ went to work at the 8:20 a.m. EDT COMEX open on Monday morning. The low tick was set at precisely 4:00 p.m. in the thinly-traded after-hours market — and it recovered a few dollars into the 5:00 p.m. close from there.


The high and low ticks were reported by the CME Group as $1.409.90 and $1,393.80 in the August contract.


Gold was closed in New York yesterday at $1,395.10 spot, down $3.20 from Friday.  Net volume was very decent at a bit over 261,000 contracts — and roll-over/switch volume out of August and into future months was pretty healthy at a bit under 62,000 contracts.



The silver price was guided in a similar manner as gold’s, with the only real difference being that after a minor three-hour long sell-off in morning trading in London, it managed to rally to its high of the day by the COMEX open in New York.  But twenty minutes or so later, JPMorgan et al worked their magic and, like gold, was sold down to its New York low by exactly 4:00 p.m. EDT in the after-hours trading.  It rallied a few pennies into the 5:00 p.m. close from there.


The high and low ticks in silver were recorded as $15.15 and $14.985 in the September contract.


Silver was closed at $15.005 spot, up 4 cents from Friday.  Net volume was actually pretty light at a hair over 42,500 contracts — and there was just under 6,000 contracts worth of roll-over/switch volume in this precious metal.



The platinum price stair-stepped its way quietly higher until shortly after 11 a.m. in Zurich trading — and then was sold lower and back to almost unchanged by 9 a.m. in New York.  It then rallied at a pretty good clip until around 11:20 a.m. EDT…but then was sold lower until noon — and it didn’t do much of anything for the remainder of the Monday trading session.  Platinum was closed at $815 spot, up 7 bucks from Friday.



The palladium price was down about 12 dollars by shortly after the Zurich open on their Monday morning — and the big rally that followed got capped an hour later.  From that point, like platinum, it was sold very unevenly lower until around 11:20 a.m. in New York.  From that juncture it also chopped very quietly sideways into the 5:00 p.m. EDT close of trading.  Palladium was closed at $1,545 spot, down 9 dollars from Friday.



The dollar index closed very late on Friday afternoon in New York at 97.29 — and opened down 6 basis points once trading commenced around 6:35 p.m. EDT on Sunday evening.  It edged very quietly and unevenly lower from there — and the 97.16 low tick was set at 9:30 a.m. in London.  A ‘rally’ commenced at that point — and it chopped quietly higher until precisely 12:00 noon in New York.  The 97.42 high tick was set at that juncture.  It then crept unevenly sideways until trading ended at 5:30 p.m. EDT.  The dollar index finished the Monday session at 97.38…up 9 whole basis points from Friday’s close.


Here’s the usual DXY chart from Bloombergclick to enlarge.



And here’s the 6-month U.S. dollar index chart, courtesy of the folks over at the Internet site.  The delta between its close…96.98…and the close on the DXY chart above, was 40 basis points on Monday.  Click to enlarge as well.



The gold stocks opened up a tad once trading began at 9:30 a.m. in New York on Monday morning, but were sold down to their respective low of the day by a few minutes before 11 a.m. EDT.  From there they rallied back to a bit above the unchanged mark by a few minutes after the 1:30 p.m. COMEX close — and they edged quietly lower and back below the unchanged mark by the time the markets closed at 4:00 p.m. EDT.  The HUI closed down 0.25 percent.



The silver equities followed a virtually identical price path as the gold shares, except they didn’t recover as much after their pre-11 a.m. EDT lows in New York.  Their rallies also ended at 1:35 p.m. — and fifteen minutes later they were heading lower once again.  Nick Laird’s Intraday Silver Sentiment/Silver 7 Index closed down 1.56 percent.  Click to enlarge if necessary.



And here’s Nick’s 1-year Silver Sentiment/Silver 7 Index chart, updated with Monday’s doji.  Click to enlarge as well.



The CME Daily Delivery Report showed that 43 gold and 176 silver contracts were posted for delivery within the COMEX-approved depositories on Wednesday.


In gold, the largest of the three short/issuers was ABN Amro, with 32 — and in distant second place was Advantage with 9 contracts.  Of the four largest long/stoppers, the two biggest were Advantage with 24 — and JPMorgan with 15 contracts.  All contracts, both issued and stopped, involved their respective client accounts.


In silver, there were four short/issuers as well, but the only two that mattered were International F.C. Stone and JPMorgan, with 143 and 28 contracts from their respective client accounts.  There were four long/stoppers:  HSBC USA with 61 for its own account…Morgan Stanley with 52 for its client account — and JPMorgan and Advantage, with 41 and 22 contracts for their respective client accounts as well.


The link to yesterday’s Issuers and Stoppers Report is here.


The CME Preliminary Report for the Monday trading session showed that gold open interest in July fell by 4 contracts, leaving 76 left, minus the 43 mentioned a few paragraphs ago.  Friday’s Daily Delivery Report showed that 6 gold contracts were actually posted for delivery today, so that means that 6-4=2 more gold contracts were added to the July delivery month.  Silver o.i. in July declined by 25 contracts, leaving 729 still open, minus the 176 mentioned a few short paragraphs ago.  Friday’s Daily Delivery Report showed that 30 silver contracts were actually posted for delivery today, so that means that 30-25=5 more silver contracts just got added to July.



There was yet another withdrawal from GLD on Monday, as an authorized participant removed 37,736 troy ounces.  There was another huge deposit in SLV yesterday, as an authorized participant added 2,949,068 troy ounces…five truck loads.


There has been 19.53 million troy ounces of silver added to SLV since June 4.


The folks over at Switzerland’s Zürcher Kantonalbank updated their website with the goings-on inside their gold and silver ETFs as of the close of business on Friday, July 5 — and this is what they had to report.  Their was a fairly hefty 24,419 troy ounces of gold removed…but a chunky 288,231 troy ounces of silver was added.


The only activity in gold over at the COMEX-approved depositories on the U.S. east coast on Friday,  was the 803.750 troy ounces/25 kilobars [U.K./U.S. kilobar weight] that was deposited at Manfra, Tordella & Brookes, Inc.  Nothing was shipped out.  I won’t bother linking this amount.


It was exceedingly quiet in silver, as nothing was reported received — and only one good delivery bar…1,027 troy ounces…was shipped out of Delaware — and I won’t bother linking this, either.


The star of the day was the COMEX-approved gold kilobar depository in Hong Kong on their Friday, as they reported receiving 875 of them — and shipped out 474.  This activity was at Brink’s, Inc. as per usual — and the link to that, in troy ounces, is here.



Here are the usual two charts that Nick Laird passes around every weekend.  They show the total gold and silver holdings in all known depositories, ETFs and mutual funds as of the close of business on Friday, July 5 — and this is what they had to report that week.  They added a net 75,000 troy ounces of gold — and a monstrous net 8.866 million troy ounces of silver.  And that amount of silver doesn’t include the 2.95 million troy ounces that was deposited in SLV on Monday.



The Commitment of Traders Report, for positions held at the close of COMEX trading on Tuesday, July 2…showed a slight improvement in the Commercial net short position in silver, but a huge increase in the short position in gold.


In silver, the Commercial net short position decreased by 1,489 contracts, or 7.4 million troy ounces of paper silver.


They arrived at that number by reducing their long position by 4,473 contracts, but they reduced their short position by even more…5,962 contracts — and it’s the difference between those two numbers that represents their change for the reporting week.


Under the hood in the Disaggregated COT Report, it was just about all Managed Money traders that made up that difference, as they increased their long position by 1,438 contracts, but they also increased their short position by 2,776 contracts as well.  The difference between those two numbers…1,338 contracts…represents their change for the reporting week.


The difference between that number — and the Commercial net short position, as it always has to be, was made up by the traders in the other two categories, as the Other Reportables increased their net long position by 1,228 contracts — and the Nonreportable/small traders decreased their long position by 1,379 contracts.  The difference between those two numbers is…151 contracts.  151 plus 1,338 equals 1,489…the decrease in the commercial net short position.


Ted figures that JPMorgan didn’t change this short position in silver by much during the reporting week — and still thinks that their net short position is something under 10,000 contracts.  Certainly much less since last Tuesday’s cut-off.


The Commercial net short position in silver now stands at 260.3 million troy ounces…basically unchanged from last week.


Here’s the 3-year COT chart for silver from Nick — and the change, or lack thereof, should be noted.  Click to enlarge.



Of course, after Friday’s big sell-off, this data is very much “yesterday’s news” — and baring any further dramatic price changes after today’s COMEX close, we’ll have a more accurate picture of the current condition of silver in this coming Friday’s COT Report.



In gold, the commercial net short position blew out by another 26,672 COMEX contracts, or 2.67 million troy ounces of paper gold.


They arrived at that number by adding a piddling 54 contracts to their long position, but added a staggering 26,440 short contracts — and it’s the difference between those two numbers that represents their change for the reporting week.


To my surprise, under the hood in the Disaggregated COT Report, the Managed Money traders made up only part of the change, as they added 9,268 long contracts — and only reduced their short position by 7,078 contracts.  It’s the sum of those two numbers…16,346 contracts…that represents their change for the reporting week.


The other surprise was in the other two categories, as both added heavily to their net long positions as well…as they had to…the Other Reportables by 6,046 contracts — and the ‘Nonreportable’/small traders by 4,280 contracts.  The sum of those two numbers…10,326 contracts…plus the 16,346 contract change in the Managed Money category…add up to the change in the commercial net short position…26,672 contracts…which they must do.


Here’s the snip from the Disaggregated COT Report for gold, so you can see these changes for yourself.  Click to enlarge.



The commercial net short position in gold is now up to 28.68 million troy ounces.
Here’s the 3-year COT chart for gold — and the further increase in the commercial net short position should be noted as well.  Click to enlarge.



Gold is very much in bearish territory according to this COT Report…the most bearish since late September of 2016 according to Ted, but it’s somewhat ancient history after the price action on both Friday — and again yesterday.  Like in silver, baring anything unforeseen after the COMEX close today, the picture will become clearer with Friday’s COT Report.


In the other metals, the Manged Money traders in palladium increased their net long position in this precious metal by a further 1,255 contracts.  The Managed Money traders are net long the palladium market by 12,841 contracts…over 50 percent of the total open interest.  Total open interest in palladium is 24,091 COMEX contracts, up 1,202 contracts from the previous week.
And as I keep repeating, it’s a very tiny market, which Ted says is mostly a cash market now, because palladium is in such tight supply.  In platinum, the Managed Money traders increased their net short position by another 7,453 contracts during the reporting week.  The Managed Money traders are now net short the platinum market by 15,630 COMEX contracts…a tad under 20 percent of the total open interest.  In copper, the Managed Money traders increased their net short position in that metal by 9,373 COMEX contracts during the reporting week — and are now net short the COMEX futures market by 45,978 contracts, or 1.15 billion pounds of the stuff…18 percent of total open interest.



Once again, here’s Nick chart showing the tight correlation between the gold price — and what the Managed Money traders are doing…or are tricked into doing.  You don’t need a degree in mathematics to see how tight is correlation is.  Click to enlarge.



Here’s Nick Laird’s “Days to Cover” chart updated with yesterday’s COT data for positions held at the close of COMEX trading last Tuesday. It shows the days of world production that it would take to cover the short positions of the Big 4 – and Big ‘5 through 8’ traders in each physically traded commodity on the COMEX. Click to enlarge.



For the current reporting week, the Big 4 traders are short 121 days of world silver production, which is up 8 days from last week’s report – and the ‘5 through 8’ large traders are short an additional 84 days of world silver production, which is up 1 day from last week’s report – for a total of 205 days that the Big 8 are short, which is almost seven months of world silver production, or about 478.4 million troy ounces of paper silver held short by the Big 8. [In the prior week’s COT Report, the Big 8 were short 196 days of world silver production.]


In the COT Report above, the Commercial net short position in silver was reported as 260.3 million troy ounces.  As mentioned in the previous paragraph, the short position of the Big 8 traders is 478.4 million troy ounces.  The short position of the Big 8 traders is larger than the total Commercial net short position by a chunky 478.4 minus 260.3 equals 218.1 million troy ounces.


The reason for the difference in those numbers…as it always is…is that Ted’s raptors, the 36-odd small commercial traders other than the Big 8, are net long that amount.  How ridiculous is that, you ask?  Very.


As I mentioned in my COT commentary in silver above, Ted figures that JPMorgan is short around 10,000 contracts in silver…or maybe less.  And considerably less since the price action of last Friday.


The Big 4 traders are short, on average, about…121 divided by 4 equals…30.25 days of world silver production each.  The four traders in the ‘5 through 8’ category are short 84 days of world silver production in total, which is 21 days of world silver production each.


The Big 8 commercial traders are short 43.3 percent of the entire open interest in silver in the COMEX futures market, which is a decent increase from the 39.9 percent they were short in last week’s report.  And once whatever market-neutral spread trades are subtracted out, that percentage would be around the 50 percent mark.  In gold, it’s now 44.4 percent of the total COMEX open interest that the Big 8 are short, up a bit from the 42.9 percent they were short in last week’s report — and 50 percent, or a bit more, once the market-neutral spread trades are subtracted out.


It’s been a while since the Big 8 held a bigger short position in gold than they do in silver…at least on a percentage basis.  But this is one of the few times that they are.


In gold, the Big 4 are short 62 days of world gold production, up 4 days from what they were short in last week’s COT Report.  The ‘5 through 8’ are short another 33 days of world production, up 5 days from what they were short last week…for a total of 93 days of world gold production held short by the Big 8…up 9 days from last week’s report.  Based on these numbers, the Big 4 in gold hold about 67 percent of the total short position held by the Big 8…basically unchanged from last week’s COT Report.


The “concentrated short position within a concentrated short position” in silver, platinum and palladium held by the Big 4 commercial traders are about 59, 66 and 80 percent respectively of the short positions held by the Big 8.  Silver is up 1 percentage point from a week ago, platinum is also unchanged from last week — and so is palladium from a week ago…and off its record high by a bit.



The July Bank Participation Report [BPR] data is extracted directly from the data in yesterday’s Commitment of Traders Report.  It shows the number of futures contracts, both long and short, that are held by all the U.S. and non-U.S. banks as of Tuesday’s cut-off in all COMEX-traded products.  For this one day a month we get to see what the world’s banks are up to in the precious metals -and they’re usually up to quite a bit.


[The July Bank Participation Report covers the time period from June 4 to July 2 inclusive.]


In gold, 5 U.S. banks are net short 107,222 COMEX contracts in the July BPR.  In June’s Bank Participation Report [BPR] these same 5 U.S. banks were net short 64,906 contracts, so there was an eye-watering increase of 42,316 contracts from a month ago.


The last time that the U.S. banks were short this much gold in the COMEX futures market was back in October of 2017.  At that time they were net short 108,444 contracts.


JPMorgan, Citigroup and HSBC USA would hold the lion’s share of this short position.  But as to who other two U.S. banks might be that are short in this BPR, I haven’t a clue, but it’s a given that their short positions would not be material.


Also in gold, 28 non-U.S. banks are net short 105,459 COMEX gold contracts, which is a bit under four thousand contracts per bank.  In the June BPR, these same 28 non-U.S. banks were net short 76,122 COMEX contracts…so the month-over-month change is up huge…29,337 contracts.
However, as I always say at this point, I suspect that there’s at least two large non-U.S. bank in this group, one of which would include Scotiabank.  It’s certainly possible that it could be the BIS in No. 1 spot.  But regardless of who this second non-U.S. bank is, the short positions in gold held by the remaining 26 non-U.S. banks are immaterial.


At the low back in the August 2018 BPR [for July] these same non-U.S. banks held a net short position in gold of only 1,960 contacts!  So they’re back to being short big time — and now hold their largest net short position in gold, ever…and I have records going back to July 2014.


As of this Bank Participation Report, 33 banks [both U.S. and foreign] are net short 35.1 percent of the entire open interest in gold in the COMEX futures market, which is up a huge amount from the 29.3 percent they were short in the June BPR.


Here’s Nick’s chart of the Bank Participation Report for gold going back to 2000.  Charts #4 and #5 are the key ones here.  Note the blow-out in the short positions of the non-U.S. banks [the blue bars in chart #4] when Scotiabank’s COMEX short position was outed by the CFTC in October of 2012.  Click to enlarge.



In silver, 4 U.S. banks are net short 27,489 COMEX contracts in July’s BPR.  In June’s BPR, the net short position of 4 U.S. banks was 7,600 contracts, so the short position of the U.S. banks is up a whopping 19,889 contracts in just one month.


As in gold, the three biggest short holders of the four  U.S. banks in total, would be Citigroup, HSBC USA — and JPMorgan, but maybe not in that particular order.  Whoever the remaining U.S. bank may be of the 4 U.S. banks in total, their short position, like the short positions of the two smallest banks in gold, is immaterial as well.


Also in silver, 26 non-U.S. banks are net short 36,928 COMEX contracts in the July BPR…which is up a decent amount from the 27,599 contracts that 21 non-U.S. banks were short in the June BPR.  I would suspect that Canada’s Scotiabank [and maybe one other, the BIS perhaps] holds a goodly chunk of the short position of these non-U.S. banks.  I believe that a number of the remaining 24 non-U.S. banks may actually net long the COMEX futures market in silver.  But even if they aren’t, the remaining short positions divided up between these other 24 non-U.S. banks are immaterial – and have always been so.
As of July’s Bank Participation Report, 30 banks [both U.S. and foreign] are net short 36.5 percent of the entire open interest in the COMEX futures market in silver-which is up a monstrous amount from the 16.3 percent that they were net short in the June BPR – with much, much more than the lion’s share of that held by Citigroup, HSBC USA, JPMorgan, Scotiabank — and certainly one other non-U.S. bank.


Here’s the BPR chart for silver.  Note in Chart #4 the blow-out in the non-U.S. bank short position [blue bars] in October of 2012 when Scotiabank was brought in from the cold.  Also note August 2008 when JPMorgan took over the silver short position of Bear Stearns-the red bars.  It’s very noticeable in Chart #4-and really stands out like the proverbial sore thumb it is in chart #5.  Click to enlarge.



In platinum, 5 U.S. banks are net short 10,554 COMEX contracts in the July Bank Participation Report.  In the June BPR, these same banks were net short 10,394 COMEX contracts…so there’s been virtually no change month-over-month.  [At the ‘low’ back in July of 2018, these same five U.S. banks were actually net long the platinum market by 2,573 contracts.] That’s quite a change for the worse since then.


Also in platinum, 18 non-U.S. banks are net short 9,456 COMEX contracts in the July BPR, which is up a decent amount from the 7,095 COMEX contracts that 19 non-U.S. banks were net short in the June BPR.  [Note: Back at the July 2018 low, these same non-U.S. banks were net short only 1,192 COMEX contracts.]


And as of July’s Bank Participation Report, 23 banks [both U.S. and foreign] are net short 24.9 percent of platinum’s total open interest in the COMEX futures market, which is up a bit from the 20.9 percent they were net short in June’s BPR.


Here’s the Bank Participation Report chart for platinumClick to enlarge.



In palladium, 4 U.S. banks are net short 7,765 COMEX contracts in the July BPR, which is up a small amount from the 7,425 contracts that these same 4 U.S. banks held net short in the June BPR.


Also in palladium, 15 non-U.S. banks are net short 2,352 COMEX contracts-which is up a very decent amount from the 923 COMEX contracts that these 15 non-U.S. banks were short in the June BPR.


But when you divide up the short positions of these non-U.S. banks more or less equally, they’re completely immaterial…especially when compared to the positions held by the 4 U.S. banks.


As of this Bank Participation Report, 19 banks [U.S. and foreign] are net short 42.0 percent of the entire COMEX open interest in palladium.  In June’s BPR, the world’s banks were net short 44.6 percent of total open interest.


Here’s the palladium BPR chart.  And as I point out every month, you should note that the U.S. banks were almost nowhere to be seen in the COMEX futures market in this precious metal until the middle of 2007-and they became the predominant and controlling factor by the end of Q1 of 2013 — and are even more so today.  Click to enlarge.



For the second  month in a row, it wasn’t a very happy BPR in gold, as the banks have obviously been at battle stations for the last two month.  It’s mostly the same in silver, except that the big deterioration has only come over the last thirty days.


But, like this week’s COT report, from which this Bank Participation Report is derived, it’s almost yesterday’s news as well considering what’s happened to the prices of both silver and gold since last Tuesday’s cut-off…particularly silver.


It remains to be seen if we get yet another wash, rinse, spin…repeat cycle this time around…as JPMorgan et al are facing some rather serious and long-term headwinds…not only in the currencies, but in foreign bank gold purchases.  I’m expecting these headwinds to become far more pronounced as the year progresses.


I have a very decent number of stories for you today.


Consumer Credit Hits All-Time High as Credit Card Debt Surges

Two months after an unexpectedly poor March consumer credit print, when just $10.3 billion (since revised to $10.9 billion) in revolving and non-revolving debt was created to fund another month of US purchases on credit, moments ago the Fed reported that in May, things went back to normal, as total consumer credit jumped by $17.1 billion – just shy of April’s $17.5 billion – the highest since November’s $21.6 billion, and to a new all time high in consumer credit of $4.088 trillion, which in turn was up 5.2% from a year earlier, rising roughly twice as fast as overall GDP.  Click to enlarge.



This was entirely thanks to a surge in credit card debt as the latest revolving credit print was a whopping $7.2 billion injection, up from a draw of $2 billion in March, and from $7 billion in May, and not only more than all the credit card debt issued in the first three months of the year but the highest since last October when Americans were racking up credit card debt to pay for Thanksgiving.


Meanwhile, as credit card debt soared, non-revolving credit – auto and student loans – posted a surprisingly soft print, with only $9.9 billion in new debt created. This was over $600 million below last month’s print, and the lowest since June 2018.


And while the combined April and May rebound in credit card use may ease concerns about the financial stability and propensity of the US consumer to spend, one place where there were no surprises was in the total amount of student and auto loans: here as expected, both numbers hit fresh all time highs with a record $1.6 trillion in student loans outstanding, a whopping increase of $30 billion in the quarter, while auto debt also hit a new all time high of $1.16 trillion, an increase of $8 billion in the quarter.


In other words, whether they want to or not, Americans continue to drown even deeper in debt, and enjoying every minute of it.


This Zero Hedge new story showed up on their Internet site at 3:29 p.m. EDT on Monday afternoon — and I thank Brad Robertson for sending it our way.  Another link to it is here.


Morgan Stanley: “We Are Putting Our Money Where Our Mouth is and Downgrading Global Stocks to Sell

Authored by: Andrew Sheets, chief cross-asset strategist at Morgan Stanley
Over recent weeks, you’ve heard us discussing why we think investors should fade the optimism from the recent G20. Why we think bad data should be feared rather than cheered because it will bring more central bank easing. Why we think the market is too optimistic on 2019 earnings and is underestimating the pressure from inventories, labour costs and trade uncertainty.
The time has come to put our money where our mouth is. In light of these concerns and others, we are downgrading our allocation to global equities from equal-weight to underweight.
The most straightforward reason for this shift is simple – we project poor returns: Over the next 12 months, there is now just 1% average upside to Morgan Stanley’s price targets for the S&P 500, MSCI Europe, MSCI EM and Topix Japan (including dividends and equally weighted). If we ignore those targets and estimate returns for those same regions based on current valuations, adjusting for whether returns tend to be better or worse given current economic data, the upside is very similar (3%). There comes a point for every analyst where you need to change your forecast or change your view. We’re doing the latter.
Why are those return estimates so low, especially in light of possible central bank easing? Our economists, after all, are calling for the Federal Reserve to lower rates later this month, and the ECB to embark on a new round of quantitative easing.
Our concern is that the positives of easier policy will be offset by the negatives of weaker growth: We think a repeated lesson for stocks over the last 30 years has been that when easier policy collides with weaker growth, the latter usually matters more for returns. Easing has worked best when accompanied by improving data. If you don’t believe us, we have some European stocks from April 2015, shortly after the ECB’s first QE programme was announced, that we’d like to sell you.
That’s a courageous, but correct call.  This commentary showed up on the Zero Hedge website at 5:35 a.m. on Monday morning EDT — and it comes to us courtesy of Brad Robertson.  Another link to it is here.

In June, the Fed shed Treasury securities at the slower pace announced in its new plan for QT, but it dumped Mortgage Backed Securities (MBS) at the fastest rate since the QE unwind started, breaching its “up to” cap for the first time. And it is experimenting with the opposite of its QE-era “Operation Twist” – Operation Untwist?
Total assets at the Fed fell by $34 billion in June, as of the balance sheet for the week ended July 3, released Friday afternoon. This includes $15 billion in Treasury securities and a record $23 billion in MBS, for a total of $38 billion, less some other balance-sheet activities unrelated to the QE unwind. This trimmed its total assets to $3.813 trillion, the lowest since September 2013. Since the beginning of the “balance sheet normalization” era, the Fed has shed $648 billion. Since peak-QE in January 2015, it has shed $687 billion:
The Fed doesn’t sell its Treasury holdings outright. But when securities mature, the US Treasury Department pays them off, and the Fed then doesn’t reinvest this money in new securities. Instead, it destroys this money in the reverse manner in which it created it during QE. But the Fed has announced caps – the “up to” amounts. If the amount of Treasuries that mature in a given month exceed the cap, the Fed reinvests the overage in new Treasuries. Under the Fed’s new regime, the maximum amount of Treasury securities allowed to roll off when they mature was $15 billion in June. And that’s what happened.
This 3-chart commentary from Wolf appeared on his Internet site on Saturday sometime — and I thank Richard Saler for pointing it out.  Another link to it is here.

Wall Street Dons a ‘Tinfoil Hat’ to Ponder U.S. Currency Intervention

A growing chorus of Wall Street foreign-exchange analysts is writing about the risk that U.S. President Donald Trump may move beyond words in his quest for a weaker dollar.
From ING to Canadian Imperial Bank of Commerce, more analysts in recent weeks have been openly contemplating the wild-card notion that the administration could intervene to cheapen the dollar. The research comes as Trump has intensified criticism of both the Federal Reserve and other countries’ currency practices. The U.S. leader tweeted last week that Europe and China are playing a “big currency manipulation game,” and called on the U.S. to “MATCH, or continue being the dummies.”
This article showed up on the Bloomberg website at 12:27 PDT on Monday — and was updated about thirty minutes later.  I found it in a GATA dispatch early yesterday evening — and another link to it is here.

The Debate Over the Fed Begins — Editorial

It can’t be entirely a coincidence that the first move by a major newspaper against the confirmation of Judy Shelton as a governor of the Federal Reserve should come from the Washington Post. It is, after all, the only newspaper in America to have been launched to glory by, in Eugene Meyer, a just-retired chairman of our central bank. Yet the Post gets into none of that history in its editorial this morning in respect of Ms. Shelton. It’s not hard to see why.
The Post’s beef against Ms. Shelton is not that she lacks for credentials. It calls her academic credentials “strong” and acknowledges that she has held public positions in what we would call two non-political agencies, the National Endowment for Democracy, which she chaired, and the European Bank for Reconstruction and Development, to which she is currently America’s representative. What the Post objects to, for starters, is that she’s had an “eminently political career.
It faults her for having advised the presidential campaigns of Senator Bob Dole, Ben Carson, and President Trump. Yet such Fed chairmen as G. William Miller and Alan Greenspan also advised presidential candidates (respectively, Hubert Humphrey and Richard Nixon). The Post also faults Ms. Shelton for writing op-eds. It must be the first time the publisher of one of journalism’s most distinguished op-ed pages has sought to disqualify a nominee for public service for having written for op-ed pages.
On the one hand, the Post complains about Ms. Shelton flip-flopping on interest rates, depending on the administration. On the other hand, it suggests that the “great cause of her career” has been the gold standard. It says she sees it as a “restraint on central bank currency manipulations” while opponents – “correctly,” the Post avers – see it as an “arbitrary limitation on liquidity that almost strangled the world economy to death in the 1930s.”
This editorial put in an appearance on The New York Sun‘s website on Sunday — and I found it embedded in a GATA dispatch — and another link to it is here.

Why the U.S.-Puppet-‘President’ of Venezuela is Toast

Even the corporate media are losing enthusiasm for the US government’s ploy to replace the democratically elected President Nicolás Maduro of Venezuela with the U.S.-anointed security asset Juan Guaidó. Reuters reports in a July 1 article, “Disappointed Venezuelans lose patience with Guaidó as Maduro hangs on,” that the U.S.-backed “military uprising” has “unraveled.” A critical reading of the article explains why.
Reuters correctly notes that “the 35-year old (Guaidó) had risen to prominence three months before,” though a little more background information would have been helpful. For instance, Guaidó was unknown to 81% of Venezuelans a little more than a week before he got a telephone call from U.S. Vice President Pence telling him to declare himself interim president of Venezuela, which Guaidó dutifully did the following morning at a street rally flanked with U.S. and Israeli flags. A member of a marginal far-right Venezuelan political party, Guaidó was not even in the top leadership of his own grouplet.
Reuters continues that after Maduro took office, he “has overseen an economic collapse that has left swaths of the once-wealthy country without reliable access to power, water, food, and medicines.” Not mentioned by Reuters is the economic war being waged against Venezuela by the US and its allies that has employed unilateral coercive measures – sanctions – responsible for taking the lives of some 40,000 people.
This illegal collective punishment of the Venezuelan people by the U.S. government has diverted legitimate funds of the Venezuelan government. Reuters obliquely mentions “Guaidó has gained control of some of the Venezuelan assets in the United States.” In fact, the U.S. government seized those assets, which would have gone to preventing the “economic collapse” that Reuters supposedly laments.
Reuters reports: “The opposition’s momentum has slowed since the April 30 uprising. Attendance at Guaidó’s public rallies has dropped and the opposition has held no major protests since then.” Reuters hints why Guaidó’s fortunes are eclipsing: “the opposition says it is…seeking to build a grassroots organization.” That is, the U.S. surrogate does not have a meaningful grassroots presence.
This fairly long commentary appeared on the Internet site last Friday — and I pulled it from a Zero Hedge article that was posted there on Monday evening.  Another link to it is here.

Deutsche Bank CEO Slashes 18,000 Jobs in $8.3 Billion Revamp

Deutsche Bank AG unveiled a radical overhaul that will see the lender exit its equities business, post a €2.8 billion ($3.1 billion) second-quarter loss and cut the workforce by a fifth to reverse a slide in profitability.
Chief Executive Officer Christian Sewing will shelve the dividend this year and next and take restructuring charges of 7.4 billion euros through 2022 to pay for an overhaul that shrinks the German lender’s once-mighty investment bank along with its global footprint and key fixed-income business.
Deutsche Bank shares were down 0.7% in Frankfurt trading as of 12:35 p.m. after climbing as much as 4.4% earlier. The lender’s riskiest bonds also reversed earlier gains, with perpetual notes down about 0.5 euro cents to around 90 cents on the dollar and notes callable in 2022 down 0.4 cents. Analysts said that while the restructuring was broader than expected, the newly announced targets will be tough to achieve.
The scale of the revamp underscores the failure of Sewing and his recent predecessors to solve the fundamental problem: costs were too high and revenue too low. After government-brokered merger talks with Commerzbank AG collapsed in April, the CEO had few alternatives to bolster market confidence. His plan was approved by the board at a meeting Sunday.
This news item was posted on the Internet site at 7:44 a.m. PDT on Sunday morning — and was updated about twenty hours later.  I thank Swedish reader Patrik Ekdahl for bringing it to our attention — and another link to it is here.

Turkey’s Erdogan Draws the Line on Rates After Shock Central Bank Ouster

Hours after unexpectedly forcing out the central bank’s governor, Turkish President Recep Tayyip Erdogan made clear that he expects both the successor and the rest of the establishment to toe the government’s line on monetary policy.
The decision to dismiss Murat Cetinkaya, whose four-year term was due to end in 2020, was announced in the early hours on Saturday following a pause in interest rates that lasted for over nine months. Deputy Governor Murat Uysal was named as a replacement. Investors weren’t impressed — the lira slid more than 3% in early Asian trading before paring losses.
During a closed meeting after the decree came out, Erdogan told lawmakers from his ruling party that politicians and bureaucrats all need to get behind his conviction that higher interest rates cause inflation, according to an official who was present. He also threatened consequences for anyone who defies the government’s economic policies, the official said.
Erdogan’s office of communication didn’t respond to calls and text messages seeking comment.
By abruptly dismissing Cetinkaya, Erdogan reminded everyone who is in charge of monetary policy,” said Piotr Matys, a London-based strategist at Rabobank.
This story showed up on the Bloomberg website at 7:34 a.m. on Sunday morning Pacific Daylight Time [PDT] — and it’s the second offering of the day from Patrik Ekdahl.  Another link to it is here.  A companion story from Bloomberg on this issue is headlined “Turkey Assets Fall as Traders Fret Over Central Bank Credibility” — and that’s from Patrik as well.

BP Oil Tanker Shelters in Persian Gulf on Fear of Iran Retaliation

An oil tanker run by BP Plc is being kept inside the Persian Gulf in fear it could be seized by Iran in a tit-for-tat response to the arrest by Gibraltar last week of a vessel hauling the Islamic Republic’s crude.
The British Heritage, able to haul about 1 million barrels of oil, was sailing toward Iraq’s Basrah terminal in the south of country when it made an abrupt u-turn on July 6. It’s now off Saudi Arabia’s coast and a person with knowledge of the matter says BP’s concern is that it could become a target if Iran seeks to retaliate for the seizure near Gibraltar — by British Royal Marines — of the tanker Grace 1 on July 4.
BP’s decision shows how rising tensions between Iran and the west are having an impact on the oil tanker industry that’s vital to the global trade in crude. Tehran’s foreign ministry said the arrest of Grace 1 was an act of piracy and a former leader of Iran’s Revolutionary Guard said on Twitter the Islamic Republic should take a British tanker in response. The U.S. accused Iran of recent attacks on tankers just outside the Persian Gulf.
No surprises here.  This news story was posted on the Internet site at 2:58 a.m. PDT on Monday morning — and was updated two and a half hours later.  I extracted it from a Zero Hedge article that Brad Robertson sent our way.  Another link to it is here.

Poland joins Hungary with Huge Gold Purchase and Repatriation

With a variety of the world’s central banks going on a gold buying spree in recent years such as Russia and China, there has unsurprisingly been no shortage of news-flow in this area for the world’s financial media to comment on. But even in such an environment of abundant sovereign gold purchases, a number of buying bombshells have stood out for their intensity and ‘shock and awe’ abruptness. Particularly from nations which on the surface might seem like unlikely gold buyers.
One of these was the announcement last October by Hungary’s central bank, that after 32 years of holding unchanged gold reserves, it had rapidly increased it’s monetary gold holdings by 1,000% or 10 fold, from 3.10 tonnes to 31.5 tonnes, and also repatriated (brought home) this entire holding from London to Budapest, away from the clutches of the Bank of England. At the time we asked:
With almost all of Poland’s gold held at the Bank of England, a relevant question now is how long before Poland also sees fit to repatriate its gold in physical form away from the fractionally-backed LBMA controlled gold trading centre of London.
The answer to this question was, not long at all. For to the Hungarian bombshell we can now add Hungary’s neighbor and closest political ally Poland, which has just in it’s own way shocked the gold market and the European Union by announcing that during the first half of 2019 it has already bought 100 tonnes of monetary gold at the Bank of England, bringing it’s gold reserves to 228.6 tonnes (all stored at the Bank of England), and now plans to repatriate almost half of it’s strategic gold reserves (or at least 100 tonnes) back to the National Bank of Poland (NBP) vaults in Warsaw.
It should be obvious that all the world’s central banks are wise to the Anglo/American price management scheme in the precious metals market — and have been for years…even though they won’t breath a word of that fact in public.  It just been recently that some of them have done something about it.  More will follow — and soon.  This commentary from Ronan Manly  appeared on the Internet site on Sunday sometime — and I found it on the Internet site.  Another link to it is here.

China’s Gold Hoard Swells Again in June

Central banks are going after gold in 2019, boosting holdings as economic growth slows, trade, and geopolitical tensions rise, and some authorities seek to diversify their reserves away from the dollar.
The People’s Bank of China said today it raised reserves for a seventh month in June, adding 10.3 tons, following the inflow of almost 74 tons in the six months through May. Last week Poland said it more than doubled its gold assets over this year and last, becoming the top holder in central Europe.
Aside from its attempt to diversify its holdings of dollars, owning more gold reserves is also an important strategy in China’s rise as a superpower,” Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore, said in an email. Additions are likely to continue in coming months, according to Lee.
As I’ve point out every month when this sort of story appears, China is now officially adding to its reserves, physical gold that was purchased mostly likely years ago.  But, without doubt, it’s certainly still buying gold in the open market, plus whatever it mines every year — and that will be recorded as official reserves when it suits them.  I suspect that they hold many multiples of what they are officially acknowledging…about 1,900 tonnes.  This Bloomberg article showed up on their website at 11:12 p.m. PDT on Sunday night — and was updated about five hours later.  I found it on the Internet site — and another link to it is here.

2019 H1 China gold demand lowest for five years

China has been recognised as the world’s largest consumer of gold for around the past seven years, but while the latest figures still confirm the nation as the world’s No. 1, 2019 demand looks to have been the lowest for around five years.  Indeed if the country’s buying slump continues, 2019 may prove to be the first sub 2,000 tonne total gold demand year, based on SGE gold withdrawal figures, since 2016.
June Shanghai Gold Exchange gold withdrawal data certainly seem to confirm a downturn in Chinese gold demand so far this year.  This should not really be too surprising given the apparent effects of President Trump’s tariff impositions on Chinese imports to the U.S.  This latest data may well give some advantage to the U.S. in its recently resurrected trade talks with China given that it appears the U.S. President’s tactics may be beginning to have an effect on the Chinese economy, and on disposable incomes within the Middle Kingdom.  But whether this is likely to be sufficient to stimulate concessions from the Chinese to meet U.S. demands is rather less certain.  There is face-saving on both sides to take into account in such negotiations and saving face is perhaps more important in Asian cultures than in the West!
We have been consistent over the past few years in equating Shanghai Gold Exchange gold withdrawal data with the country’s overall total gold demand – a sometimes controversial view.  This data is much closer to the known levels of China’s own domestic gold production plus known and unknown gold imports plus an allowance for scrap conversion than are other estimates of Chinese gold consumption. These latter seem to ignore gold imported by the financial sector and restrict demand estimates to industrial demand (including jewellery and artefacts) and investment.  These cumulative figures appear to fall hugely short of known Chinese gold flows.
At the half-year point, withdrawals are over 23% down on the 2018 six months figure and over 30% down on 2017.  It should also be noted that both the 2017 and 2018 full year gold withdrawal figures ended up well short of those for the record 2015 year when full year SGE total gold withdrawals came to nearly 2,600 tonnes.
This commentary from Lawrie put in an appearance on the Sharps Pixley website early on Monday morning BST — and another link to it is here.

Central bank gold purchases up 73% so far this year, says WGC

Net gold purchases by central banks totalled 35.8 t in May, 27% lower month-on-month, but net purchases in the year to date, at 247.3 t, are 73% higher year-on-year, the World Gold Council (WGC) reports.

WGC market intelligence director Alistair Hewitt on Monday pointed out that central banks in several emerging markets, including Russia, China, Turkey and Kazakhstan, continued to dominate buying, with those banks being “the four biggest buyers so far” this year.

Kazakhstan’s central bank has bought in excess of 25 t of gold over the last six years, peaking last year at 50.6 t. To date this year, the bank has bought 20.5 t of gold.
To date this year, China has bought 63.8 t of gold, while Turkey’s central bank, which started buying gold outright in May 2017, bought about 49.3 t of gold, so far this year.
Other central banks that have increased their gold purchases since 2016 include Uzbekistan, Serbia, the Kyrgyz Republic, India, Hungary, Greece, Egypt, Colombia and Belarus.
This brief news item, was posted on the Internet site on Monday — and it’s another article that I lifted from the Sharps Pixley website.  Another link to it is here.


Moments after arriving in Princeton back on May 5, after a 6-hour back-roads trip from Merritt, I decided to tour the town before we had a bite to eat and headed back home via B.C. Highway 5A.  Almost right away we came across a children’s playground that backed onto a dike that protected the town from flooding during the spring run-off on the Tulameen River.  There were yellow-bellied marmots everywhere.  I had a field day with my 400mm lens, which I really didn’t need…but was too lazy to walk back to the car to get a different one.  The last photo is of the patriarch of the clan…according to a lady who lived across the street.  There are so many in the town that they are not only a nuisance, but are becoming a real problem — as they are weakening the dike with all their burrows.  Click to enlarge.


No nation could preserve its freedom in the midst of continual warfare.” — James Madison

Only platinum was allowed to close in positive territory on Monday.  The two primary precious metals…silver and gold…ran into initial price resistance in early morning trading in London — and then JPMorgan et al did the rest during the COMEX trading session in New York.
The barely worth mentioning activity in the currencies certainly had very little to do with precious metal prices yesterday.  Yesterday’s price action was a purely paper affair in the GLOBEX/COMEX futures market.
Here are the 6-month charts for the Big 6 commodities — and there’s not a lot to see.  Click to enlarge.
And as I type this paragraph, the London open is less than a minute away — and I see that the gold price was sold down a bit in the first few hours of trading once it began at 6:00 p.m. EDT on Monday evening in New York — and it has been chopping quietly and unevenly sideways since — and is currently lower by $1.40 an ounce. Silver has managed to edge a bit higher since its low in early morning trading in the Far East — and is up 4 cents at the moment. Platinum and palladium have been under some selling pressure as well, with the former down 5 bucks — and the latter off its Shanghai low, but also down 5 dollars as Zurich opens.
Net HFT gold volume is already very decent at a bit over 54,000 contracts — and there’s 3,034 contracts worth of roll-over/switch volume out of August and into future months. Net HFT silver volume is nothing special at 8,400 contracts — and there’s a teeny tiny 68 contracts worth of roll-over/switch volume in that precious metal.
The dollar index opened unchanged once trading commenced at 7:45 p.m. EDT on Monday evening in New York, which was 7:45 a.m. China Standard Time on their Tuesday morning. It chopped very unevenly sideways until around 12:50 p.m. CST — and then began to edge a bit higher — and back above the unchanged mark by a bit. Its current high, such as it is, came very close to the 2:15 p.m. CST afternoon gold fix in Shanghai. It’s off that by a bit now — and up 6 basis points as of 7:45 a.m. in London…8:45 a.m. in Zurich.

Today, at the close of COMEX trading, is the cut-off for this Friday’s Commitment of Traders Report — and I’ll wait until tomorrow’s column before I express an opinion as to what it may contain.  But there should be big improvements in both…particularly in silver.
When Ted and I were in conversation yesterday, he wasn’t sure if JPMorgan et al were going to go ‘Full Monty’ on  the precious metals this time or not…or even if they were capable of doing it.  It’s  a chip shot in silver below its last moving average of importance.  But in gold it’s big dollars for both the 200 and 50-day moving averages.
So we wait some more.

And as I post today’s missive on the website at 4:02 a.m. EDT, I note that all four precious metals have been sold lower as the first hour of London and Zurich trading draws to a close.  Gold is down $2.50 the ounce at the moment — and silver is now down a penny.  Platinum is down 7 bucks…but ‘da boyz’ hammered palladium lower by 20 dollars as they continue their attempts to run the Managed Money traders out of their huge long position.
Gross gold volume is around 69,500 contracts — and minus roll-over/switch volume, net HFT silver volume is a bit under 63,000 contracts.  Net HFT silver volume is about 10,500 contracts now — and there’s still only a tiny 93 contracts worth of roll-over/switch volume on top of that.
The dollar index has been chopping very quietly sideways during the last hour — and is up 7 basis points as of 8:45 a.m. BST in London/8:45 a.m. CEST in Zurich.
That’s it for today, which is more than enough — and I’ll see you here tomorrow.

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July 9th, 2019

Posted In: Ed Steer's Gold and Silver Digest

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