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February 8, 2020 | Another Surprising COT Report

"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."
08 February 2020 — Saturday


The gold price wandered around a few dollars either side of unchanged on Friday — and that lasted until the job numbers hit the tape at 8:30 a.m. in New York.  It rallied a bit from there, but obviously ran into ‘something’ a few minute after the 9:30 open of the equity markets.  Once the 10 a.m. EST afternoon gold fix was put to bed, the gold price was sold lower until around 11:30 a.m. — and from there it rallied quietly until it ran into another ‘something’ a minute or so after 2 p.m. in after-hours trading.  It crept quietly lower from there until trading ended at 5:00 p.m. in New York.


The low and high ticks certainly aren’t worth looking up.


Gold was closed on Friday afternoon in New York at $1,570.00 spot, up $3.60 on the day.  Net volume was fairly decent at a tiny bit under 275,000 contracts — and there was about 12,500 contracts worth of roll-over/switch volume in this precious metal.



The silver price chopped and flopped around by a few pennies up until a few minutes after London opened — and it was then sold quietly lower until the jobs report at 8:30 a.m. in New York.  At that point it was down about 15 cents the ounce.  Its rally on that news met the same fate as the gold price around 9:30 a.m. EST — and it was sold down to its low tick of the day by shortly before 11:30 a.m.  From that point onwards, it followed the same price path as gold.


The high and lows in silver were recorded by the CME Group as $17.855 and $17.605 in the March contract.


Silver was closed in New York on Friday afternoon at $17.665 spot, down 12.5 cents from Thursday.  Net volume was pretty quiet at a bit under 50,000 contracts — and there was a hair under 22,000 contracts worth of roll-over/switch volume out of March and into future months.



Platinum was sold quietly and unevenly lower until around 3:30 p.m. China Standard Time on their Friday afternoon — and from that juncture it headed equally unevenly higher until around 8:45 a.m. in New York.  It was then sold lower until noon EST – and then ticked a few dollars higher during the remainder of the Friday session.  Platinum was closed at $966 spot, up 4 dollars from Thursday.



Palladium was also sold quietly and unevenly lower until the low tick was set just minutes before 3 p.m. CST on their Friday afternoon.  It rallied a bit until shortly before 9:30 a.m. in Zurich — and from that point it wandered sideways for the rest of the day.  Palladium was closed at $2,213 spot, down 15 bucks.



The dollar index closed very late on Thursday afternoon in New York at 98.49 — and opened down about 4 basis points once trading commenced around 7:45 p.m. EST on Thursday evening, which was 8:45 a.m. China Standard Time on their Friday morning.  It dipped a few more basis points until about 11:40 a.m. CST — and then began to ‘rally’.  There was a big down/up/down dip between noon in London and 10:45 a.m. in New York — and it began to ‘rally’ anew from there.  Most of the gains that mattered were in by a few minutes before 1 p.m. EST — and it chopped quietly sideways until trading ended at 5:30 p.m. in EST.  The dollar index finished the Friday session at 98.68…up 19 basis points from its close on Thursday.


If there was any correlation between the dollar index and what was happening in the precious metals, it was most certainly accidental.


Here’s the DXY chart for Friday, courtesy of Bloomberg as always.  Click to enlarge.



And here’s the 5-year U.S. dollar index chart, courtesy of the good folks over at the Internet site.  The delta between its close…98.57…and the close on the DXY chart above, was 11 basis points on Friday.  Click to enlarge as well.



The gold stocks edged a bit higher at the 9:30 open of the equity markets in New York on Friday morning, but as soon as the gold price was sold lower after the afternoon gold fix in London, the gold shares followed until 12:30 p.m. EST.  They rallied a tiny bit from there, but gave most of that back by the 4:00 p.m. close.  The HUI closed down 1.90 percent.   Considering the fact that gold closed higher on the day, I was certainly underwhelmed by the performance of their underlying shares.



The price path for the silver equities was almost a carbon copy of what happened to the gold stocks — and Nick Laird’s Intraday Silver Sentiment/Silver 7 Index closed down 1.83 percent, which is somewhat understandable considering the fact that silver was closed down 12.5 cents the ounce on Friday.  Click to enlarge if necessary.



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



Here are two of the usual charts from Nick that show what’s been happening for the week, month — and year-to-date. The first one shows the changes in gold, silver, platinum and palladium for the past trading week, in both percent and dollar and cents terms, as of their Friday closes in New York – along with the changes in the HUI and the Silver 7 Index.


Here’s the weekly chart — and the only green bar is for platinum.  The silver equities ‘outperformed’ their golden cousins during the reporting week, but that’s cold comfort.  Click to enlarge.



And there’s no month-to-date chart, because it’s the same as the weekly chart for this week only.


And now that we’re into February, here’s the year-to-date chart — and it’s pretty abysmal.  It’s hard to say whether the gold or silver equities are underperforming the most — and it really doesn’t matter.  I’ve read all kinds of cockamamie reasons on the Internet as to why this is so — and the only ones that have a shred of credibility with me is that there is active shorting going on…and/or that hedge funds are locking in profits after after the big gains of last year.  One thing is for sure — and that’s that it ain’t the average precious metal investor that is having such deleterious impact on precious metal prices.  That was certainly obvious on several occasions during this past week — and the price action in both the silver and gold equities on Friday was a poster child for that.


Of course the precious metal equities could be caught in the same downdraft as the stocks of other commodities as well.  Collateral damage if you will.



As Ted has been pointing out for some time now, how silver and gold prices unfold from here depends on whether or not the Big 7/8 commercial traders that are holding huge but unrealized loses on the short side, are able to snooker the Managed Money traders out of their historic and unprecedented net long position.  They were semi-successful earlier this week, but they’ve lost ground since Tuesday.  And as I said in this space last week — and the week before…as for the negative start to the year for the precious metal equities, I’ve already discussed this at length just above.  But I suspect that ‘da boyz’ will have to let silver break above $18 spot by a decent amount — and gold above $1,600 spot before we see serious money return to this sphere.



The CME Daily Delivery Report showed that 198 gold and 6 silver contracts were posted for delivery within the COMEX-approved depositories on Tuesday.


In gold, there were five short/issuers in total — and the two largest were JPMorgan with 145 contracts out of its in-house/proprietary trading account — and Advantage, with 41 contracts from its client account.  There were eight long/stoppers in total — and the two biggest were JPMorgan and Advantage, with 120 and 23 contracts for their respective client accounts.  Scotia Capital/Scotiabank was a distant third with 15 contracts for its own account.


In silver, the two short/issuers were Advantage and ADM, with 5 and 1 contracts — and all from their respective client accounts.  The lone long/stopper was Canada’s Scotia Capital/Scotiabank — and all six were for their own account.


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


So far this month there have been 6,133 gold contracts issued/reissued and stopped — and that number in silver is 219 contracts.


And of that amount in gold, JPMorgan has issued 1,465 contracts and stopped 2,551 contracts for it its own account — and it has also issued 467 contracts and stopped 1,597 contracts from its so-called ‘client’ account.  The other two big players in gold so far this month have been Australia’s Macquarie Futures and HSBC USA.  The former has issued 1,469 contracts from its own account — and HSBC USA has issued 1,500 contracts from its own account as well.


The CME Preliminary Report for the Friday trading session showed that gold open interest in February fell by 333 contracts, leaving 1,729 still open, minus the 198 contracts mentioned a few paragraphs ago.  Thursday’s Daily Delivery Report showed that 464 gold contracts were actually posted for delivery on Monday, so that means that 464-333=131 more gold contracts were just added to the February delivery month.  Silver o.i. in February rose by 1 contract, leaving 7 still around, minus the 6 contracts mentioned a few paragraphs ago.  Thursday’s Daily Delivery Report showed that 5 silver contracts were actually posted for delivery on Monday, so that means that 5+1=6 more silver contracts just got added to February.



There was another deposit into GLD yesterday, as an authorized participant added 37,649 troy ounces.  There were no reported changes in SLV.


In other gold and silver ETFs on Planet Earth on Friday…net of all changes in COMEX, SLV & GLD…there was a net 10,610 troy ounces of gold added — and there was a net 456,675 troy ounces of silver added as well.


There was no sales report from the U.S. Mint on Friday.


Month-to-date the mint has sold 26,000 troy ounces of gold eagles — 10,500 one-ounce 24K gold buffaloes — and 1,548,000 silver eagles.


The only activity in gold over at the COMEX-approved depositories on the U.S. east coast on Thursday was a paper transfer of 25,673 troy ounces from the Registered category — and back into Eligible over at HSBC USA.  That rather counterintuitive transfer during the February delivery month has a whiff of JPMorgan to it.  The link to that is here.


There was a fair amount of activity in silver.  There was one truckload…600,489 troy ounces…that was received at HSBC USA.  And of the 295,311 troy ounces that was shipped out…190,040 troy ounces left Scotiabank…100,331 was shipped out of Brink’s, Inc. — and the remaining 4,940 troy ounces departed CNT.  In the paper arena, there was one truckload…608,858 troy ounces…transferred from the Registered category and back into Eligible at Brink’s, Inc. — and another truckload…600,994 troy ounces…made the trip in the other direction over at CNT.  The remaining 9,998 troy ounces was transferred from the Registered category and back into Eligible over at Delaware.  The link to all this is here.


And there was no activity over at the COMEX-approved gold kilobar depositories in Hong Kong on their Thursday — and I must admit that I’m rather surprised at the lack of movement over there this past week.



Here are the usual two charts that Nick passes around on Friday evening — and I thought I’d include them in my Saturday column, rather than wait until Tuesday’s missive.


They show the amount of gold and silver in all known depositories, ETFs and mutual funds as of the close of business on Friday, February 7During the week that was, there was a net 382,000 troy ounces of gold added — and in silver, that number was 2,696,000 troy ouncesClick to enlarge for both.


The Commitment of Traders Report, for positions held at the close of COMEX trading on Tuesday, February 4, showed the expected increase in the Commercial net short position in silver…although it wasn’t much…plus a very decent improvement in the commercial net short position in gold.


In silver, the Commercial net short position increased by a rather smallish 2,185 contracts, or 10.9 million troy ounces of paper silver.


They arrived at that number by adding 1,142 long contracts, but they also increased their short position by 3,327 contracts — and it’s the difference between those two numbers that represents their change for the reporting week.


But under the hood in the Disaggregated COT Report, there were some fairly large surprises.  The biggest one was that the Managed Money traders not only reduced their long position by 4,187 contracts, but they also reduced their short position by an eye-watering 11,438 contracts…for a net increase in their net long position of 11,438 minus 4,187 equals 7,251 contracts for the reporting week.  This was totally unexpected.  The traders in the ‘Other Reportables’ and ‘Nonreportable’/small trader categories both reduced their net long positions during the reporting week.


The other surprise was that because of the huge short covering by the Managed Money traders during the reporting week, the traders in the Producer/Merchant category…read JPMorgan…did  virtually nothing during the reporting week…decreasing their net short position by a paltry 117 contracts.  Ted was expecting/hoping that they would be covering short positions rather aggressively during the reporting week, but that didn’t happen for the above-mentioned reason.


The heavy lifting in the commercial category came on the backs of the traders in the Producer/Merchant category, as they increased their net short position by a further 2,302 contracts during the reporting week — and that number, minus the above-mentioned 117 contracts equals the 2,185 contract change in the Commercial net short position…which it must do.


The Commercial net short position in silver now sits at 91,356 COMEX contracts, or 456.8 million troy ounces.


With the new Bank Participation Report in hand, Ted was able to recalibrate JPMorgan’s short position…which he now pegs somewhere around the 16-17,000 contract mark…up one or two thousand contracts from the 15,000 contracts they were short in last week’s COT Report.  I will use the average of those two numbers…16,500 contracts…for recording-keeping purposes further down.


Here is Nick’s 3-year COT chart for silver, updated with Friday’s data — and the smallish changes should be noted.  Click to enlarge.



Ted wasn’t sure what made seven of the Managed Money traders on the short side close out their short positions during the reporting week, but that’s what they did.  It’s not that the COT Report was good or bad in silver, it’s what happened internally that was unexpected.



In gold, the commercial net short position fell by a very hefty 29,127 contracts, or 2.91 million troy ounces of paper gold.


They arrived at that number by reducing their long position by 15,514 contracts, but they also reduced their short position by 44,641 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 all Managed Money traders, plus more, as they decreased their long position by 30,497 contracts — and also increased their short position by 7,831 contracts, for a total weekly change of 38,328 contracts.


The first surprise in gold was how aggressively the ‘Other Reportables’ and ‘Nonreportable’/small traders increased their net long positions…the former by 8,042 contracts — and the latter by 1,159 contracts.


As a result of that, the traders in the ‘Producer/Merchant’ category where JPMorgan hides out didn’t do much of anything during the reporting week.  Ted was expecting JPM to aggressively cover short positions during the reporting week, but they didn’t…just like they didn’t in silver — and for the same reason…there was aggressive buying going on in other categories.


And also like in silver, all the heavy lifting came at the expense of the of the Swap/Dealers, as they decreased their net short position by 28,798 contracts — and almost all those contracts were covered at a big loss, as a large number of the Big 7 traders reside in this category.


The commercial net short position in gold is now down to 33.17 million troy ounces…still, like in silver, in nosebleed territory on an historical basis.


And with the latest Bank Participation Report in hand, Ted has adjusted JPMorgan’s short position in gold up to 32,000 contracts…up 2,000 contracts from what he pegged them at a week ago.


Here’s the 3-year COT chart for gold from Nick.  Click to enlarge.



It was a decent COT Report for gold, but once again the real surprises occurred under the hood and out of sight in the Disaggregated COT Report…with JPMorgan doing nothing — and the Big 7 booking some sizeable losses on their short-covering.


They still have a long way to go to get back to break-even, let alone make a profit.  Their efforts were partially successful up to an including Tuesday’s cut-off, but since then they’ve lost ground, particularly in gold.


I look forward to what Ted has to say about all this in his weekly review later today.



In the other metals, the Manged Money traders in palladium decreased their net long position by  a further 1,042 COMEX contracts during the reporting week — and are now net long the palladium market by only 6,660 contracts…a bit under 29 percent of the total open interest…down from 32 percent last week.  Total open interest in palladium is 23,178 COMEX contracts.  In platinum, the Managed Money traders decreased their net long position by 4,478 contracts.  The Managed Money traders are net long the platinum market by an eye-watering 47,234 COMEX contracts…a bit over 47 percent of the total open interest. The other two categories [Other Reportables/Nonreportable] are still mega net long against JPMorgan et al.  In copper during the reporting week, the Managed Money traders increased their net short position in that metal by a further 26,915 COMEX contracts.  They are now net short copper by 47,701 COMEX contracts, which works out to 1.19 billion pounds of the stuff.  Not a record by a long shot, but still a lot.



Here’s Nick Laird’s “Days to Cover” chart, updated with the COT data for positions held at the close of COMEX trading on Tuesday, February 4.  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 155 days of world silver production…unchanged from last week’s COT Report – and the ‘5 through 8’ large traders are short an additional 79 days of world silver production…up 4 days from last week’s COT Report – for a total of 234 days that the Big 8 are short…up 4 days from last week’s report. This represents over 7 months of world silver production, or about 546 million troy ounces of paper silver held short by the Big 8.  [In the prior reporting week, the Big 8 were short 230 days of world silver production.]


In the COT Report above, the Commercial net short position in silver was reported by the CME Group as 457 million troy ounces.  As mentioned in the previous paragraph, the short position of the Big 8 traders is 546 million troy ounces.  So the short position of the Big 8 traders is larger than the total Commercial net short position by around 546-457=89 million troy ounces.


The reason for the difference in those numbers…as it always is…is that Ted’s raptors, the 34-odd small commercial traders other than the Big 8, are net long that amount.


Another way of stating this [as I say every week in this spot] is that if you removed the Big 8 commercial traders from that category, the remaining traders in the commercial category are net long the COMEX silver market.  It’s the Big 8 against everyone else…a situation that has existed for about three decades in both silver and gold — and now in platinum and palladium as well.


As I mentioned in my COT commentary in silver above, I estimated that JPMorgan is short around 16,500 contracts, up about 1,500 contracts from last week’s COT Report.  That works out to around 82.5 million troy ounces of paper silver…which works out to around 35 days of world silver production that JPMorgan is short…up 3 days from last week’s report.


Based on the numbers in the paragraph below, that puts JPMorgan in the #2 spot in the Big 4/8 trader category.  Citigroup is the largest, but not by a lot now, with HSBC USA and one other to round out the Big 4.


As per the first paragraph above, the Big 4 traders in silver are short around 155 days of world silver production in total. That’s about 38.75 days of world silver production each, on average.  The four traders in the ‘5 through 8’ category are short around 79 days of world silver production in total, which is around 19.75 days of world silver production each, on average…up one full day from last week.


The Big 8 commercial traders are short 48.5 percent of the entire open interest in silver in the COMEX futures market, which is up a bit from the 46.2 percent they were short in last week’s COT report.  And once whatever market-neutral spread trades are subtracted out, that percentage would be around the 55 percent mark.  In gold, it’s now 44.2 percent of the total COMEX open interest that the Big 8 are short, up a bit from the 42.6 percent they were short in last week’s report — and around 50 percent, once the market-neutral spread trades are subtracted out.


In gold, the Big 4 are short 64 days of world gold production, down 2 days from last week’s COT Report.  The ‘5 through 8’ are short another 36 days of world production, down 4 days from last week’s report…for a total of 100 days of world gold production held short by the Big 8…down 6 days from last week’s COT Report.  Based on these numbers, the Big 4 in gold hold about 64 percent of the total short position held by the Big 8…up 2 percentage points from last week’s report.


The “concentrated short position within a concentrated short position” in silver, platinum and palladium held by the Big 4 commercial traders are about 66, 69 and 77 percent respectively of the short positions held by the Big 8…the red and green bars on the above chart.  Silver is down a percent from last week’s COT Report…platinum is also down a percent from a week ago — and palladium is unchanged week-over-week.


And as Ted has been pointing out for years now, JPMorgan is, as always, in a position to double cross the other commercial traders at any time and walk away smelling like a rose — and that’s because of the massive amounts of physical gold and silver they hold.  Up to this point they [obviously] haven’t taken advantage of that situation.  But if they do, you’ll see it in the price immediately.



The February Bank Participation Report [BPR] data is extracted directly from 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 February Bank Participation Report covers the time period from January 8 to February 4 inclusive.]


In gold, 5 U.S. banks are net short 105,824 COMEX contracts in the February BPR.  In January’s Bank Participation Report [BPR] these same 5 U.S. banks were net short 109,567 contracts, so there was a rather immaterial decrease of 3,743 COMEX contracts from a month ago.


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


Ted mentioned on the phone yesterday that JPMorgan is short around 32,000 contracts of the total net short position held by the 4 U.S. banks as of Tuesday’s COT Report.  That’s around 30 percent of the total short interest held by these same banks.  I suspect that JPMorgan may not be the biggest short holder in COMEX gold futures.  That title most likely belongs to Citigroup now.


Also in gold, 34 non-U.S. banks are net short 105,325 COMEX gold contracts.  In January’s BPR, 35 non-U.S. banks were net short 115,544 COMEX contracts…so the month-over-month change shows a decrease of 10,219 contracts.


At the low back in the August 2018 BPR…these same non-U.S. banks held a net short position in gold of only 1,960 contacts!


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 the No. 1 spot.  But regardless of who this second non-U.S. bank is, the short positions in gold held by the remaining 32 non-U.S. banks are immaterial.


As of this Bank Participation Report, 39 banks [both U.S. and foreign] are net short 32.2 percent of the entire open interest in gold in the COMEX futures market, which is up a decent amount from the 28.7 percent they were short in the January BPR.


Here’s Nick’s BPR chart 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 36,289 COMEX contracts in February’s BPR.  In January’s BPR, the net short position of these same 4 U.S. banks was 33,983 contracts, so the short position of the U.S. banks is up another 2,306 contracts month-over-month — and I would suspect that increase comes courtesy of JPMorgan.


As in gold, the three biggest short holders in silver of the four U.S. banks in total, would be JPMorgan, Citigroup and HSBC USA…with Citigroup in No. 1 spot…and JPM in No. 2 position.  Whoever the remaining U.S. bank may be, their short position, like the short position of the smallest U.S. bank in gold, would be immaterial in the grand scheme of things.


Also in silver, 24 non-U.S. banks are net short 47,308 COMEX contracts in the February BPR…which is up a bit from the 46,947 contracts that these same 24 non-U.S. banks were short in the January 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 22 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 22 non-U.S. banks are immaterial – and have always been so.


As of February’s Bank Participation Report, 28 banks [both U.S. and foreign] are net short 37.1 percent of the entire open interest in the COMEX futures market in silver-up a bit from the 34.6 percent that they were net short in the January BPR.  And much, much more than the lion’s share of that is held by Citigroup, HSBC USA, JPMorgan, Scotiabank — and maybe one other non-U.S. bank, which I suspect may be the BIS.


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 27,115 COMEX contracts in the February Bank Participation Report.  In the January BPR, 4 U.S. banks were net short 27,057 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, 20 non-U.S. banks are net short 25,365 COMEX contracts in the February BPR, which is down a hair from the 26,150 COMEX contracts that 21 non-U.S. banks were net short in the January BPR.


[Note: Back at the July 2018 low, these same non-U.S. banks were net short only 1,192 COMEX contracts.]


The short position in platinum held by the U.S. banks is at another new record high, but only by a bit — and the short position in platinum held by the non-U.S. banks is only off its record high by a few hundred contracts.  One can only imagine what the price of platinum would be if the banks weren’t in there as short sellers of both first and last resort.


And as of February’s Bank Participation Report, 25 banks [both U.S. and foreign] are net short a grotesque and obscene 51.8 percent of platinum’s total open interest in the COMEX futures market, which is virtually unchanged from the 51.9 percent that these same 25 banks were net short in January’s BPR.


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



In palladium, 3 or less U.S. banks are net short 3,616 COMEX contracts in the February BPR, which is a whopping decrease [46.9%] from the 6,813 contracts that these same 4 U.S. banks were net short in the January BPR.


Also in palladium, 12 or more non-U.S. banks are net short 941 COMEX contracts-which is down  big [54.4%] from the 1,845 COMEX contracts that 14 non-U.S. banks were short in the January BPR.


It’s obviously this short covering by the banks is what drove palladium prices to the moon and stars during January.


As of this Bank Participation Report, 15 banks [both U.S. and foreign] are net short a piddling 4.0 percent of the entire COMEX open interest in palladium…down hugely from the 34.8 percent of total open interest that 18 banks were net short in January.


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 — but have imploded into insignificance as of this Bank Participation Report.  It remains to be seen if they return as short sellers again at some point, like they’ve always done in the past.  Click to enlarge.



I don’t have all that many stories/articles for you today — and I’m including one that I’ve been saving for today’s column for the usual length and/or content reasons.


January Payrolls Soar By 225K, Smashing Expectations As Hourly Earnings Coming In Hot

For once the ADP report was not massively off.


With Wall Street expecting a 165K print in this morning payrolls report, and with ADP coming in at almost 300K, the whisper number was obviously well above the official consensus, and the BLS did not disappoint, because just as Trump hinted a few days ago with his “jobs, jobs, jobs” tweet, in January the U.S. created a whopping 225K jobs, smashing expectations, and well above last month’s upward revised 142K print.  Click to enlarge.



Looking back, the change in total non-farm payroll employment for November was revised up by 5,000 from +256,000 to +261,000, and the change for December was revised up by 2,000 from +145,000 to +147,000. With these revisions, employment gains in November and December combined were 7,000 higher than previously reported. After revisions, job gains have averaged 211,000 over the last 3 months.


Commenting on the report, Bloomberg‘s Eliza Winger says “The labor market is roaring, providing an important pillar for the economy. The unemployment rate edged up, but Bloomberg Economics continues to expect it to fall to 3.3% by year-end and labor costs to intensify.”


As Bloomberg notes, the headline number is a solid beat and shows the labor market was still quite strong, if only before whatever damage the coronavirus pandemic does. The gain in average hourly earnings is good news for American workers, and the rise in labor force participation suggests we still have a bit of labor market slack. All in all, Powell will likely be happy with this report, which was neither bad nor good enough to send stocks sharply higher.


One final point, and we’ll have more to say about this in a subsequent post: annual revisions to historical data took some of the shine off one of President Trump’s bragging points, cutting 2018’s job gain to 2.31 million from 2.68 million. The increases in 2017 and 2019 were about 2.1 million, meaning that each year under Trump – while still strong – has been slightly slower than the 2.35 million increase in the final year of Barack Obama’s presidency.


This longish chart-filled commentary put in an appearance on the Zero Hedge website at 8:42 a.m. EST on Friday morning — and I thank Brad Robertson for sharing it with us.  Another link to it is hereGregory Mannarino‘s post market close rant for Friday is linked here.  I haven’t had the time to watch it yet, so I have no rating on this one.  You’re on your own.


The Fed Has a Dangerous Repo Problem: Here’s the Charts


On both days this week that the New York Fed offered its $30 billion in 14-day repo loans to 24 trading houses on Wall Street, there was far more demand than the New York Fed had pre-announced it would provide. On Tuesday, the demand was for $59.05 billion while the New York Fed provided only $30 billion. On Thursday, the demand was for $57.25 billion while the New York Fed provided $30 billion. In short, there is a growing demand for long-term loans at affordable rates on Wall Street – meaning one or more trading houses has a borrowing problem.
The Fed’s loans this week were made at a below-market interest rate of 1.60 percent.


The demand for the 14-day loans came on the same days that the New York Fed also funneled huge amounts of money in one-day loans to Wall Street’s trading houses: $64.45 billion on Tuesday and $46.75 billion on Thursday. Cumulatively, since the Fed began making these unprecedented repo loans to Wall Street’s trading houses on September 17 of last year, it has pumped over $6.6 trillion into Wall Street.


That money has found a home in the stock market, most likely via stock index futures which deliver a big bang for the buck through high leverage via margin loans. Some of these Wall Street trading houses that are borrowing from the Fed at 1.60 percent are likely loaning that money out to hedge funds (at a much higher interest rate) and the hedge funds are then plowing the money into stock index futures.


The stock market has set repeated new highs since the New York Fed turned on this multi-trillion-dollar money spigot that has been operating every business day since September 17.


This commentary showed up on the Internet site on Friday morning — and I found it embedded in a GATA dispatch.  Another link to it is here.


Democrats Query Powell on Regulatory Response to Repo Blowup

Senate Democrats sent a letter Thursday to Federal Reserve Chairman Jerome Powell seeking answers about the central bank’s ongoing interventions in the money markets to relieve a cash crunch that erupted in September.


Senate Banking Committee Democrats, including ranking member Sherrod Brown and presidential hopeful Elizabeth Warren, posed a series of questions about the mid-September episode, including whether it was being used as a pretext to relax regulations that were put in place after the 2008 financial crisis. Powell is scheduled to testify before the committee on Feb. 12.


In mid-September, over $100 billion in bank deposits at the Fed quickly disappeared as a large corporate tax payments collided with a settling Treasury auction, sending overnight interest rates on repurchase agreements — so-called repo loans — as high as 10%. It was the first major test of liquidity conditions since the Fed completed a partial unwind of its balance sheet, a process which shrank the amount of cash outstanding in the banking system by almost $900 billion between the end of 2017 and July 2019.


The September episode suggested Fed officials had underestimated the amount of remaining liquidity, and they’ve since pumped hundreds of billions of dollars back into the money markets via a combination of repo loans and outright purchases of Treasury bills. But banks have argued new regulations put in place since the financial crisis that discourage lending are also to blame, and Fed officials have said they are reviewing the rules.


Warren sent a letter quizzing Treasury Secretary Steven Mnuchin in October and she and her colleagues turned their attention to Powell on Thursday.


While one potential explanation is the convergence of events in September, some market participants have argued that capital and liquidity regulation and supervision are to blame,” they wrote. “Could a bank use access to this facility to game capital or liquidity standards, and what steps are supervisors taking to ensure that is not the case?


This Bloomberg article put in an appearance on their Internet site at 9:02 a.m. PST on Thursday — and was updated about two hours later.  I found it in the Friday edition of the King Report.  Another link to it is here.


This Is How Americans Paid For That Record Holiday Spending: Credit Card Debt Exploded In December

There was something strange in last month’s consumer credit data from the Federal Reserve: at a time when Americans were getting ready to unleash a record holiday spending spree, revolving, i.e., credit card debt actually contract the most since March, which meant that either Americans were saving a whole lot more or their hourly incomes had soared higher. And since neither of these had happened, it wasn’t clear just how U.S. consumers entered the last month of the year with the first November decline in revolving debt since 2013.


In fact, as we concluded our January post on consumer credit, “considering the strong end to the year for retail sales, especially online, we assume this was a one-off event, and in December any credit card “shrinkage” was more than offset with aggressive year-end “charging.” If not, then the US consumer may indeed be reaching the limits of their debt-funded spending euphoria.”


Well, we were right again: the answer was revealed on Friday afternoon when the Fed reported the consumer credit change for the last month of 2019, and of the decade… and it was a doozy.
With analysts expecting a $15BN increase in consumer credit, the actual print was a whopping $22.1 billion, bringing total consumer credit outstanding to a new monthly all time high of $4.2 trillion.


However it was the composition of this number that sparked raised eyebrows across Wall Street, because while consumers added a rather subdued $9.4bn in non-revolving credit, i.e., auto and student loans, it was the $12.63 billion surge in revolving credit that explained not only November’s modest drop in credit card debt, but the record holiday spending in 2019, which – as we now know – was to a record extent thanks to credit card debt. In fact, as the chart below shows, it was the biggest one month increase in credit card debt since 1998!  Click to enlarge.



And so, for yet another month, Americans sank ever deeper in debt just so their obsession with purchasing things they don’t need nor cad afford – obviously – can be satisfied. Although in a world in which central banks and politicians now openly encourage excessive spending and living beyond one’s means, who can blame Americans for doing just as all monetary and fiscal officials demand of them.


This Zero Hedge news item was posted on their website at 5:05 p.m. EST on Friday afternoon — and another link to it is here.


Trump Did Not Save America From Decline — Bill Bonner

Today we look at numbers. And oh… what you can do with numbers.


There are only 10 of them. But you can string them together in a sequence as long as you want.


Then, depending on where you put the single period, you can describe either the distance to Pluto… or the thickness of a molecule…


Twisted Truths
Numbers can be as true as a carpenter’s level… or as twisted as the U.S. budget.


They may not lie. But they can hide the truth, disguise the truth, or pretend there is truth where there is none.


Put enough dodgy, dopey, and fakey numbers together, for example, and you have the U.S. GDP growth rate. The number is so full of fudge it will make your teeth rot.


This interesting commentary from Bill appeared on the Internet site early on Friday morning EST — and another link to it is here.


Doug Noland: Dr. Li Wenliang

China was in a particularly fragile state over the summer, with escalating financial stress in the face of deteriorating U.S./China trade negotiations. China’s aggressive stimulus measures along with a “phase 1” trade deal reduced near-term crisis risk. Global yields then somewhat normalized. Ten-year Treasury yields ended the year at 1.92%, up almost 50 bps from early-September lows. Bund yields ended 2019 at negative 0.19%, up from negative 0.72% on August 28th. Swiss bond yields jumped 66 bps off lows to end the year at negative 0.54%.


Then arrived the coronavirus outbreak. Suddenly, Chinese economic prospects look highly uncertain at best. Even if the outbreak somehow comes under control in the coming weeks, the economy will take a significant hit. There’s a scenario where the situation continues to deteriorate and takes on longer-term significance. Global markets rallied this week on the PBOC’s aggressive liquidity injections, along with other stimulus measures. There’s no doubting Beijing’s commitment to aggressive fiscal and monetary stimulus. I just believe almost everyone is too optimistic – drowning in central bank liquidity complacency. China is confronting an unprecedented predicament, while concurrently facing acute financial and economic fragilities associated with a faltering Bubble.


Safe haven bonds and commodities have this right. Risk markets are simply playing a different game – an especially dangerous one at that. The Fed’s dual 2019 “U-turns” have profoundly changed risk market perceptions and behavior. Rates were cut, and liquidity was injected despite loose financial conditions, speculative markets and record stock prices. Understandably, risk market participants have been emboldened to believe the Fed and global central bankers have minimal tolerance for market instability.


To argue that the Fed’s $400 billion balance sheet expansion is neither QE nor culpable for surging stock prices completely misses the point. The Fed’s operations solidified the view that securities prices are the priority – even more so than the real economy. This fundamentally altered perceptions of market risk and, accordingly, price dynamics throughout equities, corporate Credit and derivatives.


Markets have become precariously distorted and dysfunctional. Central bank monetary stimulus has succeeded in completely turning risk analysis on its head. In all the craziness, China fragilities are a positive. The coronavirus likely constructive to the U.S. economy. Even risky political and geopolitical dynamics are seen in positive light. They all ensure monetary stimulus as far as the eye can see.


And the obvious retort would be: “Doug, what’s new here?” What’s changed is the degree to which the risk markets are conditioned to disregard risk. Even a development with the clear potential to be highly disruptive to global economies and finance can be ignored. Comments I’m hearing and reading are the most detached from reality that I can recall. In my 30 plus years of following the markets, I’ve never seen such a divergence between market risk perceptions and reality.


Amen to that, dear reader!  This very worthwhile commentary from Doug put in an appearance on his Internet site very early on Saturday morning EST — and another link to it is here.


Top New Zealand Scientist Describes “Global Warming” as Pseudo-Science

The widespread obsession with Global-Warming-Climate-Change, in opposition to all factual evidence, is quite incredible.” — Dr. David Kear


Dr David Kear is a former Director General of New Zealand’s Department of Scientific and Industrial Research (DSIR) – as such he would have been considered one of New Zealand’s top scientists. He has been publishing on sea levels since the 1950s.


In 2013 Dr. Kear prepared a booklet in which he set out his views on the globalist climate project. In the booklet, Dr. Kear describes:
  • his experience with the U.N.’s International Panel on Climate Change
  • the corrupted science behind the Global Warming narrative
  • the corrupted science behind the claims of rising sea-levels
  • the demonisation by “Global Warmers” of the “essential and innocent gas, carbon dioxide“.
  • how councils are making zoning & other decisions purely to satisfy a false narrative, with total disregard for the facts
Think globally, act locally (U.N. catch-cry)  Dr. Kear describes how local councils are ignoring scientific fact in order to satisfy an agenda imposed on them from above. No matter if scientists, engineers and local observers all indicate that the sea is not rising, even retreating – once a council has decided on a policy that assumes that the sea IS rising, the council is immovable, and makes decisions on zoning and building codes on that basis.


This longish but very interesting dissertation was posted on the Internet site back on January 26 — and I’ve been saving it for today’s column.  I thank Roy Stephens for sending it our way — and another link to it is here.


Have these men found a forgotten road to lost Spanish gold mines in Ecuador?

Stefan Ansermet was deep in Ecuador’s tangled southeastern jungles, a hard two-day hike from the nearest village, when he stumbled into a clearing. The change in vegetation was so subtle that everyone else on his team tromped straight through, unaware, but Ansermet was intrigued.


Over the next four days in mid-November, Ansermet, a geologist and explorer, kept returning to the remote area, finding clues that confirmed his suspicions: The narrow clearing stretched a mile and a half and had been carved into the side of the mountain at points. There was a large, chiseled stone embedded in the trail.


It took me a day to digest all the information and realize that this is not normal,” Ansermet said from his home in Lausanne, Switzerland. “It goes perfectly north-south and has been engineered for sure. In some places it’s absolutely straight for more than 100 meters. It’s a wonderful masterpiece of road engineering.”


But it’s where this road in the middle of nowhere might lead that has Ansermet and his colleagues excited.


For more than two decades, Ansermet’s boss, Keith Barron, has been searching for two Spanish conquest-era gold mines lost in Ecuador’s forests.


The two mines, Logroño de los Caballeros and Sevilla de Oro, were established around 1562 and abandoned 40 years later after a smallpox epidemic killed the indigenous workforce and the Spaniards came under prolonged attack from local tribes. At one point the conquistadors who owned the mine appealed to the Spanish crown to send African slaves to keep the enterprises alive, but by that point the empire was bankrupt.


As the jungle reclaimed the area, the mines themselves were lost to history – last pinpointed on maps in about 1650.


Barron’s obsession with the South American mines began almost by chance.


This interesting essay was all I could find in the way of precious metal-related news items that I thought worth posting in today’s column.  It showed up on the Internet site at 6:00 a.m. EST on Friday morning — and I found it on the Internet site.  Another link to it is here.


On Saturday, August 17 we departed Kamloops on the back road on the north side of the South Thompson River, heading east to Chase.  We’ve done this trip a few times already, but at different times of the year and under different weather conditions, so the scenery is never the same twice.  The first photo was taken looking generally east — and the next three as we got further up river and further from Kamloops…looking generally WSW.  The Trans-Canada Highway is clearly visible on the south side of the river in the fourth photo.  The further we went, the more unsettled the weather became.  Click to enlarge.


Today’s pop ‘blast from the past’ certainly needs no introduction, nor does the American rock group that performs it.  The group was centered on multi-instrumentalist founder, leader and all around super genius, Tom Scholz, who played the majority of instruments on the debut album…which sold 17 million copies, one of which is mine.  How can that be 44 years ago?  The link is here.  And if you really want to get into the intricate details of this rock classic, Rick Beato does it in this video linked here.  Oh…by the way…a kick-ass bass cover to this tune is linked here.
Today’s classical ‘blast from the past’ needs no introduction either.  It’s a short work — and I have two versions of it…the orchestral — and the operatic.  The most familiar is the orchestral — and you’d pretty much have to visit the world’s largest cities to every hope to hear the operatic version of this composition.  It’s Richard Wagner’s “Ride of the Valkyries” from Act 3 of Die Walküre, the second of the four operas constituting Richard Wagner’s Der Ring des Nibelungen.  It takes the largest of orchestras to do justice to this work — and the Berlin Philharmonic is certainly up to the task.  The orchestral version is linked here — and Daniel Barenboim conducts.  The operatic version…a concert performance from the BBC Proms in 2005, from the Royal Albert Hall…is linked here.  The video is pretty bad, but the audio track is just fine.

Although the Big 7 shorts were able to cut their losses in gold in the latest COT Report, they haven’t been able to improve on that since the Tuesday cut-off, as gold has risen a bit on all three days since.  Of course the COT report also shows that they added a tiny amount to their loses in silver up until Tuesday’s cut-off.  But their silver loses are the least of their problems, as their open margin loses in gold dwarf their short position in silver.
I didn’t ask for a dollar figure from Ted when we were talking yesterday, but for the reporting week just past…Monday through Friday combined…and despite their improvements, I suspect that these Big 7 traders are still $4+ billion dollars in the red.  It still remains be be seen if they can engineer gold and silver prices lower in the days and weeks ahead and cut their loses even more.  I thought for sure that they would press their advantage further on Wednesday morning trading in London, but that never happened.  They gave up about 10 a.m. GMT — and  the gold price actually closed higher on the day.
But, as Ted pointed out on the phone, the Big 7 did book some fairly serious loses in this latest COT Report — and it remains to be seen if they will continue to cover their positions for a loss as time moves along.
Here are the 6-month charts for the Big 6 commodities.  There’s not much to see in gold and silver — and ‘da boyz’ didn’t allow platinum to go anywhere during the last week.  They’ve been beating on palladium pretty good — and it remains to be seen how low they can get the price.  The latest Bank Participation Report showed that the world’s banks have virtually vacated the COMEX futures market in palladium over the last month…now holding only 4 percent of total COMEX open interest in this precious metal…down from 32 percent in December.  Both copper and WTIC closed lower on Friday.  Click to enlarge.
With this coronavirus still raging out of control in China — and now seeping across the borders into other countries, it remains to be seen if all this money printing by the Federal Reserve plus other central banks can keep the equity and bond markets behaving going forward.
At some point, one would think, pure fear and reason will show up in the markets both in the U.S. and abroad, as China’s GDP has to be greatly threatened.
As I’ve said before on too many occasions to count, this ‘everything bubble’ cannot and will not continue forever — and anyone who thinks it can is delusional.  And if you have yet to read Doug Noland’s weekly commentary, now would be a good time.
It’s still my opinion that when the powers-that-be recognize the end is nigh regardless of their efforts, then they will allow the system to fail.  And when it does, it will do so spectacularly…a point that Gregory Mannarino, plus others [including this writer] have been pointing out for some time now.
Right now, the deep state is at battle stations on all fronts on a world-wide basis, but even they must know that their efforts will be for naught at some point.  And when that proverbial pin does arrive…all we’ll be able to do is sit back and watch the carnage on our flat-screen TVs.
Like you, I’ve got my physical precious metals in one hand — and my precious metal equities in the other…hoping it will be enough.
The ‘leaked’ report from the DoJ earlier this week regarding the criminal probe against JPMorgan is just more pressure on the bank to settle these spoofing cases.  This is Ted’s opinion on this state of affairs — and I have to agree.  So far only the traders have been charged, but a criminal charge against the bank itself is a far more serious matter — and it remains to be see if this threat bears any fruit or not.  The stakes can’t get any higher than this — and I’m sure Ted will have something to say about this in his weekly review later today — and if not then, certainly in his mid-week commentary next Wednesday.
So, with the Big 7 traders still sitting on billions of dollar worth of margin call loses that they haven’t been able to cover — and the DoJ with a gun to JPMogan’s head — and the ‘Everything Bubble’ looking increasingly vulnerable…I’m still quite content to be “all in”.
I’m done for the day — and the week — and I’ll see you here on Tuesday.

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February 8th, 2020

Posted In: Ed Steer's Gold and Silver Digest

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