It's a very good question. I'm not an expert here, but as I understand it, as long as investors have confidence in the system, a falling spot price provides a financial incentive for folks to roll over their contracts instead of redeeming them.
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The big story I'm following that seems to be quietly transpiring behind the scenes is that of JP Morgan's COMEX registered gold depletion. The depletion rate has accelerating tremendously since the price crash, and at the current rate of depletion they will have no registered gold left IN LESS THAN TWO WEEKS!
Specifically, JP Morgans supply of COMEX registered gold has declined by 36% since last Thursday, from 1.34 million ounces to 0.86 million. They obviously do not have much, if any, gold available for delivery, whether it is because the gold is already gone or they simply are not willing to part with what's left. What's going to happen if/when it's all gone is anyone's guess, but no gold available for delivery at COMEX seems like pretty big news to me.
http://www.cmegroup.com/trading/energy/nymex-delivery-notices.html
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As first reported here on April 9th, Comex gold inventories have been plummeting, demonstrating the highest levels of physical removal ever during a single quarter in Q1, 2013.
Most shocking however, is that Comex warehouse inventories are accelerating their downward plunge, with dropping inventories now spreading to the world’s largest fund depositories.
Over the last four weeks alone, total reported inventories of ETFs, funds, and depositories collapsed by over 5.5 million ounces, or in dollar terms, by over $7,000,000,000 dollars.
The largest physical removals were reported by the Comex at about 1.4 million ounces, or nearly $2 billion dollars, and the GLD, which reported total inventory removal of nearly 4 million ounces, or roughly over $5.6 billion dollars.
Here is a chart illustrating the continued gold inventory plunge at Comex warehouses ...
...
What many may not know, is that while registered Comex gold has been flat, the amount of eligible gold in Comex warehouses (the distinction between eligible and registered gold can be found here) in the past several weeks has plunged from nearly 9 million ounces, to just 6.1 million ounces as of today- the lowest since mid-2009.
What nobody knows, is why virtually the entire move in warehoused eligible gold is driven exclusively by one firm: JPMorgan, whose eligible gold has collapse from just under 2 million ounces as of the end of 2012 to a nearly record low 402,374 ounces as of today, a drop of 20% in one day, though slightly higher compared to the recent record low hit on April 5 when JPM warehoused commercial gold touched a post-vault reopening low of just over 4 tons, or 142,700 ounces.
This happened just days ahead of the biggest ever one-day gold slam down in history.
...
... checking every five minutes for the Comex gold depository update for April 25. Moments ago we finally got it, and it's a doozy. Because in just the past 24 hours, from April 24 to April 25, according to the Comex, JPM's eligible gold plunged from 402.4K ounces to just 141.6K ounces, a drop of 65% in 24 hours,and the lowest amount of eligible gold held at the vault on record, since its reopening in October 2010!
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http://www.zerohedge.com/news/2013-04-26/jpmorgan-accounts-993-comex-gold-sales-last-three-monthsTotal Net gold deliveries Feb 1 to April 25:
Vision Financial – 1 contract
R J O’Brien – 2
ADM Investor Services INC – 2
Marex – 5
Citigroup Global Markets – 10
ABN AMRO – 110
JP Morgan – 19,660
Seems like it's only JPM's inventory dropping. The other firms inventories are rather stable. ...
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30% OF CNT SILVER INVENTORIES WITHDRAWN FROM COMEX VAULTS IN 2 DAYS!
Brinks’, CNT, Delaware, HSBC, & Scotia (every vault except JPM) all saw significant physical withdrawals, as a massive 2.7 million ounces of physical metal fled COMEX depositories.
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Bron Suchecki said:To understand what is going on with COMEX stocks, don't look at the stock level - it will lead you astray. You need the metric I presented at the Gold Standard Institute's 2009 seminar; one which Professor Fekete thought was the single most important metric to determine stress in the market. ...
... The important metric is to compare stocks in relation to open interest. If stocks decline but open interest declines as well, then the stock drop is to be expected.
Thankfully Nick at Sharelynx calculates this for us - what he calls Owners per Ounce, or Stocks Cover and you can find the charts here. It is just open interest in ounces divided by stock in ounces. I like to invert it, which gives you a percentage indicating how much of the open interest is backed by stock, a sort of fractional reserves figure. The table below has those approximate figures I've eyeballed from Nick's charts.
Year Gold Silver
1980 13% 10%
2001 9% 28%
2012 26% 22%
Now 19% 21%
So even after that COMEX stock drop in gold, we still have a coverage ratio that is way above that which applied in the 1980 bull and which is not down much on 2012. The current coverage of around 20% also needs to be kept in context of the percentage of open interest which stands for delivery, which for gold and silver over the past five years averages between 2% to 4%. So it looks like COMEX has plenty of stock on a historical basis. It is when that percentage coverage gets a lot closer to the average standing for delivery rate that we can consider COMEX under stress and at risk of cash settlement. We aren't close, no matter how the much the pumper sites like to hype the recent stock declines.
...
... JPM decided to do some more redefinition, and converted another 4.7k ounces of gold from registered into eligible, pushing up the total by a fractional amount to 163.8k ounces, still just a hair's breath away from the all time record low reported last Thursday.
And as a tangent, it is perhaps just as notable that HSBC just saw 76K ounces of its registered gold, or 17% of the total gold stored underneath Bryant Park, exit through the front door, destination unknown, leaving just 378K ounces of registered gold ...
"My buddy in NYC just called me. He was chatting with a high level relationship manager in a big bullion bank private wealth management area. It's a pretty small-knit community. This guy worked at JPM until about 6 months ago and now works at another Euro-based bullion bank (there's only a few).
He (my friends contact) said that there's a massive scramble going on in Europe right now by very wealthy families and individuals to get their 400 oz. bars OUT of the bank vaults. He said "imagine a very wealthy Swiss family walks into a JPM office and says 'Id like to take my $30 million in gold bars out of your bank and if you don't let me do that I'll move my $100's of millions you manage somewhere else.'" Apparently this scenario is going on en masse. In fact, he said not too long ago JPM sent around a notice to wealthy clients that their bars were safe in a segregated vault account at JPM.
He said everyone is aware of what's going with the paper vs. physical scheme and now these wealthy entities are doing what they can to get their physical bars out of the bullion bank vaults. It certainly explains the drain in "eligible" gold from the Comex, most of coming from JPM's vault.
He also said that he suspects - although he can't confirm - that someone like a John Paulson held a gun to GLD's head to get their gold out of GLD. That's part of the bar drain from GLD. He can't confirm it was Paulson specifically, but Paulson is a private bank client of JPM's. JPM is also Paulson's main hedge fund prime broker."
The below is a comment I read under a subsequent ZH article but obviously I have no idea how credible this is.
'DavidPierre' wrote this in the comments section of the article
http://www.zerohedge.com/news/2013-04-29/spot-price-precious-metals-becoming-irrelevant
On 1/2/13, the GLD showed an alleged "inventory" of 1,349.92 metric tonnes of gold. As of this evening, the GLD "inventory" is listed as 1,078.54 metric tonnes following another drawdown today, this time for 2.10 tonnes.
So, year-to-date, the GLD "inventory" is now down 20.1%...thus the title of this post. What does this mean? How much gold is this? At what rate is gold exiting the GLD? Here are some random bullet points:So, let's have some fun and attempt to put all of this into context. Again, the GLD has now shed 271.38 metric tonnes in just the first four months of 2013. This is:
- Down over 20% means that for every 5 bars that the GLD allegedly held 4 months ago, it now holds only four.
- GLD has shed 271.38 metric tonnes YTD, that's about as much as the entire holdings of Austria and more than the combined holdings of Brazil, Denmark, Australia and Indonesia. http://en.wikipedia.org/wiki/Gold_reserve
- Using the same source as above, even after this 20% decline YTD, the GLD still holds as much gold as the country of Switzerland. Rrrrright....uh-huh....
- It took over two months for the GLD lose it's first 100 tonnes for 2013. The "inventory" fell to 1,243.05 on March 7.
- It then took just six weeks to lose the next 100 tonnes, reaching 1,145.92 on April 16.
- Three weeks ago tonight, just days before the massive, two-day beatdown of paper price, the "inventory" stood at 1,200.37. Again, this evening, it stands at 1,078.54. That's nearly 122 metric tonnes (over 10% or roughly the size of the total holdings of Mexico) in just the past three weeks alone.
- In contrast, the SLV has seen its "inventory" rise YTD. It began 2013 at 10,084.96 metric tonnes. As of this evening, it allegedly holds 10,407.44. Up 3% since the first of the year. Now Bob Pissonme would have you believe that the drop in GLD "inventory" is related to simple investor liquidation and re-allocation. If that's the case, how do explain this change in the SLV? <crickets>
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- 8,725,069 troy ounces OR
- 21,813 London "good delivery" bars OR
- If you stack those bars onto pallets holding 192 bars a piece, it looks like this:
Physical gold stocks held at CME Group's Comex warehouses in New York have dropped to a near-five year low in a further sign that gold's price crash unleashed a frenzy of demand as investors scramble to buy bars and coins.
U.S. gold stocks, comprised of 100-troy ounce COMEX gold bars, have fallen almost 30 percent since February, as dealers have switched to selling into the burgeoning Asian market, where prices and demand are higher than in New York.
...
"Some investors feel much safer having gold within their reach and their hands," said Jonathan Potts, managing director of Delaware Depository, a CME-approved silver warehouse which also holds gold and other precious metals for investors.
Total gold stocks held at CME's COMEX warehouses, often viewed as a gauge for physical supply and demand, fell almost 30 percent to around 8 million ounces on Friday, their lowest level since July 2008, from this year's high of nearly 11 million ounces in mid-February, CME data showed.
...
The strength of physical retail buying has taken dealers and mints around the world by surprise, leaving them struggling to keep up with demand.
Potts said that Delaware Depository, based in Wilmington, Delaware, has so far this year delivered about $500 million worth of physical precious metals, or about 340,000 ounces of gold, a jump of 10 percent from the same period last year.
...
Comex stocks had fallen since February on buying by affluent Asian investors.
U.S. export data for December showed an exodus of privately owned gold from the United States into emerging economic powers, such as China, which analysts attributed to a growing number of gold vaults and new precious metals investment products, particularly exchange-traded funds.
Pressure on Comex futures in recent months, as speculative investors have grown more bearish, have also spurred some U.S. banks and traders to sell bullion in Asia, where demand is better. U.S. COMEX futures had fallen 21 percent to $1,320 an ounce on April 16 from the 2011 year-end prices.
Implied gold lease rates, seen as bullion's premium calculated by subtracting the London interbank offered rates (LIBOR) from the gold forward offered rates (GOFO), had turned positive since February.
GOFO are the rates at which bullion banks are prepared to lend gold on a swap against U.S. dollars.
Since gold's cost of carry is negative in the United States, analysts say, it is profitable for dealers to take up Comex stock, remelt the bars into the correct specification and sell it to markets in Asia or Europe where physical gold demand exceeds that in the United States.
...
We had huge activity at the gold vaults.
The dealer had 0 deposits and 0 dealer withdrawals.
We had 0 customer deposits today:
total customer deposit: nil oz
We had 2 customer withdrawals:
i) Out of Scotia: 128,099.009 oz
ii) Out of Brinks: 64.18
total withdrawal: 128,163.18 oz
We had 1 big adjustments
1. From the Scotia vault: 44,243.633 oz was adjusted out of the dealer and back into the customer account.
Thus the dealer inventory rests tonight at 2.103 million oz (65.41) tonnes of gold.
The total of all gold declines again at the comex and this time breaking below 8 million oz as it rests at 8.000 million oz or 248.8 tonnes.
...
. And in other news, the delivery requests to JPM continue, as does the company's somewhat questionable strategy to make it appear it has no eligible deliverable problem by continuing to convert registered gold into commercial. Because while the bank's vault has not received one additional ounce of gold in over a week, just as it got another request for 24,028 oz of gold on Wednesday, the bank continues to "restock" by converting its stock of registered gold into eligible, this time "adding" another 57,860 oz (something HSBC decided to do as well), the fourth day in the past week it has done just this.
. We wonder what happens if those holding gold warrants with JPM (i.e., registered stock) decide to inquire as to why over a hundred thousand ounces of their gold has been converted into eligible to satisfy ongoing delivery requests?
Harvey Organ said:...
The total of all gold declines again at the comex and this time falls below the 8 million oz as it rests at 7.979 million oz or 248.18 tonnes.
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[GLD] May 6.2013:
Tonnes 1,062.30 - Ounces 34,153,900.65 - Value US $50.153 billion
May 3.2013:
Tonnes 1,065.61 - Ounces 34,260,271.68 - Value US $50.311 billion
May 2.2013:
Tonnes 1,069.21 - Ounces 34,376,316.61 - Value US $50.482 billion
...
Two weeks ago we reported about one of the biggest daily withdrawals of eligible gold from the JPM gold vault, it not on an absolute basis, then certainly on a relative, when in one day over 260k ounces of gold were withdrawn, leaving a record low 141.6k ounces, or just over 4 tons of gold in the vault. Subsequently, we tracked the daily additions and withdrawals of gold from the vault to see if any other major withdrawal request would come, instead discovering instance after instance of JPM reclassifying Registered gold into Eligible, which is how the vault saw its eligible inventory rish back to 195K ounces as of yesterday, without any actual net additions or more importantly withdrawals. It seems the pause of withdrawals has ended, and as of yesterday, another delivery led to a withdrawal of 53,658 ounces, or 28.5% of the total, leaving a fresh record low inventory of only 137,377 eligible ounces in the vault.
...
...
The chart below looks at the relative moves in JPM Eligible and Registered gold, starting with the massive withdrawal day, April 25. What is immediately obvious is that the only reason JPM's eligible gold hasn't plunged, is due to the periodic "adjustments" out of Registered into Eligible gold, which on essentially all days in the past three weeks netting out, and for every ounce converted into eligible, one ounce was removed from registered gold.This also explains why even with the three distinct sizable withdrawal days, of 24K, 57.9K, and 22.8K on May 2, May 8 and May 14.
Incidentally, when asked about the rationale behind such seemingly arbitrary reclassifications, and warrant cancellation of registered gold into eligible gold, a market surveillance analyst at the CME replied as follows:...the adjustment column does reflect the issuance and cancellation of warrants, but it can be used for other purposes as well. Anything that is not received or withdrawn would be reported in the adjustment column.
In other words, JPM and the Comex have full liberty to adjust what is eligible and what is registered, at will, and can thus easily replenish inventory even when it is about to run out.
And run out, it almost would have.
Because if one ignores the 100k or so ounces of Registered gold that were reclassified to replenish eligible inventory, JPM's eligible gold would, as of right now, be down to a negligible 36,931 ounces, or just over 1 ton!
At that point JPM would be down to one withdrawal request away from declaring force majeure on its eligible gold holdings, and all the unpleasant consequences that this would entail for future delivery requests.
... The total of all gold at the comex again fell and this time it is well below the 8 million oz at 7.943 million oz or 247.06 tonnes of gold.
The GLD for a change reported so far no change in inventory.
The SLV inventory of silver remained constant.
...
... The total of all gold at the comex rose slightly but still well below the 8 million oz at 7.975 million oz or 248.0 tonnes of gold.
The GLD for a change reported a huge loss in gold inventory of 4.52 tonnes of gold. The SLV inventory of silver remained constant.
...
... Tonight, the Comex registered or dealer gold plummeted to 1.668 million oz or 51.88 tonnes. The total of all gold at the comex fell slightly but still well below the 8 million oz at 7.966 million oz or 247.77 tonnes of gold.
The GLD reported a huge loss in gold inventory of 5.71 tonnes which followed yesterday's loss of 4.52 tonnes of gold. The SLV inventory of silver also lowered by 1.545 million oz.
...
... Tonight, the Comex registered or dealer gold remains at 1.668 million oz or 51.88 tonnes. The total of all gold at the comex fell slightly but still well below the 8 million oz at 7.934 million oz or 246.8 tonnes of gold.
The GLD reported another huge loss in gold inventory of 6.91 tonnes. The SLV inventory of silver remained constant. ...
... Tonight, the Comex registered or dealer gold remains at 1.668 million oz or 51.88 tonnes. The total of all gold at the comex fell slightly and still well below the 8 million oz at 7.897 million oz or 245.6 tonnes of gold.
The GLD reported another loss in gold inventory of 1.5 tonnes. The SLV inventory of silver lost a gigantic 5.648 million oz. ...
Well now. How would you like to get your bank statement in the mail from JP Morgan or Bank of America and see this disclaimer added at the bottom:"The information in this report is taken from sources believed to be reliable; however, the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness. This report is produced for information purposes only." - disclaimer now posted on the Comex gold and silver daily warehouse stock report as of Monday, June 3, 2013.How would feel about that? That's pretty much the equivalent of what the attorneys for the CME/Comex have done by adding the statement at the top to their daily gold and silver warehouse stock reports. That disclaimer was not in Friday's warehouse stock report, it was on yesterday's (kudos to the commenter "anonymous" who discovered this)."The information in this account statement is taken from sources believed to be reliable; however, JP Morgan Chase & Co. disclaims all liability whatsoever with regard to its accuracy or completeness. This account statement is produced for information purposes only."
The common reaction would be to ask "why now?" But we already know the answer to that question. I've suspected for a long time that the Comex vault operators lease out a substantial portion of the gold and silver bars that they keep in both the "registered" and "eligible" account designations. It would be easy income for JP Morgan, a bullion bank who actively engages in gold leasing, to lease out the majority of the bars it stores for delivery - "registered" - and for investors who have taken delivery but keep their gold/silver in JPM's Comex vault - "eligible." After all, in any given delivery month, less than 1-2% of the open interest ever stand for delivery, making it very easy for a Comex vault operator to earn extra income by leasing out gold and silver that it knows it will never be required to produce for delivery.
I am willing to bet a very large amount of money that this disclaimer was put on the warehouse reports starting yesterday as a result of the large amount of gold bars that has been physically removed from Comex vaults, and specifically from JP Morgan's "eligible" account, since the beginning of the year. This means that it is highly likely that a significant portion of the remaining gold and silver sitting in Comex precious metals vaults - especially JPM's - has been been hypothecated in some form.
...
JPM has said goodbye to another 28.4% of all of its vaulted gold - the largest one day withdrawal since April 25, the result of the departure of 61.5% of its Eligible gold, or 218k troy oz, as hundreds of thousands of registered ounces in the bast few weeks have seen warrant detachment.
Whoever is "running the JPM vault" shows no sign of relenting. At this pace, the world's biggest gold vault located below 1 CMP, and just next to the Fed's own gold vault, will be empty in about 1.5-2 months.
...
Since the beginning of the year, total COMEX gold inventories have fallen 32%, from 11 million oz in January to 7.5 million oz today. ...
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