News broke Friday that JP Morgan will exit their physical commodity trading business. The announcement was made late Friday, after which gold rallied some $15 into the close. They did however specifically say that they were not exiting the gold or silver market. What this means exactly I’m not really sure but you can bet this was done for a very good reason.
So why are they exiting this business which they have been ramping up for 5 years now? Do they see a slump coming? Do they see a problem with either the paper side or physical side of the market? Do they see a decoupling between paper and physical? Are they cutting away because of new regulation(s)? Do they fear fines or penalties similar to those that may come from trading electricity and trying to limit their liability? Other questions might include who could they sell their business to? Who is big enough? Or even, if JP Morgan is selling, who would be dumb enough to buy from a company that routinely has a full quarter where their trading department does not lose money for even 1 day? Who would trade against that track record!?
I really don’t know the answer to these questions but I do know that JP Morgan does not do an about face and change direction without good reason. I also know that they would never willingly walk away from a business considered a cash cow unless …they knew something. Like “something” was about to change. When I first heard this news I thought that the gold and silver businesses were included, they are not. However, it really wouldn’t or doesn’t matter. Where COMEX is concerned, JP Morgan holds some 390,000 ounces of registered gold (roughly 12 tons) and 46,000 ounces of eligible (customer) gold, this is less than 1.5 tons of gold. As far as I can tell, the 390,000 ounces have already been spoken for by those expecting June delivery and then some, so were JP Morgan to exit the vaulting business? It would be a wash as their inventory has been bled down.
In other and late breaking news, Alasdair McLeod of Gold Money said in an interview yesterday with Max Keiser that the Bank of England reported a drop in “gold held” of some 1,300 tons over the last 4 months! Below is the Mr. McLeod’s interview it can be seen here and it begins just after the 13 minute mark.
Keiser Report: Jihadist Safe Haven
As my title implies, “questions,” lots and LOTS of them. Whose gold were these 100,000 four hundred ounce bars? We do know that they are not the Bank of England’s because they have less than 400 tons left after the Gordon Brown fiasco 10-15 years ago. Was this gold delivered out? Was it leased? Sold? Could it have been Arab gold on account? I might add, if this gold actually “moved,” all 1,300 tons of it in 4 months…then why do the Germans need to wait 7 years for their 320 tons? Is a ton of gold “heavier” in London than it is in New York? Or bulkier? Are men and machines just naturally stronger in London and moving 4 times the amount of metal that can be done in 1/20th of the time? A legitimate question don’t you think…unless…maybe the gold just isn’t “available” (so to speak) …right now?
Yes I know, someone will say, “But, but, but you just don’t understand Bill, this works like a ‘coat check’ and someone else is holding the receipt.” Well, then why does the BOE show a lesser number of gold held by 1,300 tons? And by the way, it probably took at least this much gold to satisfy the additional demand that was spurred on since April’s price massacre. I would like to remind you that if this gold was “leased and then sold,” I assure you that at least 60-70% of it is no longer in deliverable form as it is now either jewelry or in some electronic gadget.
So, we have more and more questions along with some intriguing “clues,” what do they mean? My take is that something is and already has been changing. I would guess that supply got very tight earlier in the year (or even late last year) and this 1,300 tons “came to the rescue.” It was used to depress price in a last ditch effort like a wild “haymaker” to get people to sell their metal. If this is the case then it backfired miserably because demand has exploded and reported inventories at COMEX, GLD and now the Bank of England are bleeding profusely.
I assure you that the “game” will not last until the “very last ounce is sold,” no, it will terminate in a buying panic sometime before this. Neither I, nor anyone else knows exactly when this will be, trying to time it is foolish and in my opinion you should be “all in” now while the game is still running and deliveries are still being made.
My question is:
When are all of the criminal bankers going to prison?
Bill,
I’m a little confused. Dave Schectman posted a comment from Ted Butler yesterday (I think) who said something to the effect that declining inventories were not that important. I now just read from David’s blog that Dan Norcini claims that the gold market is NOt in backwardation. Since both of these statements appear to contradict what you and Andy and Jim Sinclair (and others) have said, I cannot help but wonder why even the experts appear to be disagreeing with each other. I recognize that there will always be minor disagreement on the fine points but rarely will those in the know have schisms on the fundamentals. I would appreciate your thoughts.
First off we all have our own opinions and write what we individually believe. As for Butler, I have great respect for his work and the efforts made on behalf of the community. That said, inventories DO MATTER as they are what support the paper markets! Dan Norcini was speaking of COMEX only and of the sequential months, if world markets were taken into account then how is it explained that China regularly pays $20-$30 over spot for their imports? Is that not backwardation of real physical over any and all paper? Everyone is entitled to their own opinion, you need to figure out for yourself which opinions you want to believe or follow. Especially for the big picture and “why”. I guess in the end that none of this “discourse” will even matter because we will be more worried about many other topics than “what is the price of Gold?”.
more clues…???
Highbridge Owner JPMorgan Chase Cuts Hedge Funds From Pension
JPMorgan Chase is one of the biggest hedge fund managers in the world, managing billions for pension funds. But its own pension isn’t sure the asset class is worth the risk anymore.
J.P. Morgan Retirement plans to liquidate its entire $2.3 billion hedge fund portfolio, which accounts for about 18% of its $13 billion in assets. The bank’s pension is able to make the risk-cutting move—it will also pull back from equities—because it is that rarest of things: an overfunded pension system, with enough money to cover 117% of its obligations.
Eliminating hedge funds will “immunize” the pension from the vagaries of the market, a source told Hedge Fund Alert.
JPM Retirement’s hedge fund portfolio includes about 30 managers. The pension’s decision to eliminate them also calls into question the future of its hedge-fund management team, led by Renee Kelly.
http://www.finalternatives.com/node/24284
Hi Bill,
Where then, in addition to physical gold and silver and gold and silver stocks do you suggest we park our fiat dollars currently held in bank accounts? Are you thinking one should be “all in” physical and stocks with just a minimal amount in bank for monthly expenses?
This is a question I have been pondering for quite awhile now. I would appreciate your reply.
yes, I am an advocate of “all in” except for what you need to live on. If you cannot bring yourself to do this then large balances should not be held in banks, T-Bills held directly at the Treasury is an alternative.