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.