This month's Bank Participation Report (BPR) in gold was highly revealing. It gives considerable clues about what happened during the big POG swoon, and what the players did. In a nutshell, the bullion banks squared their positions and left the hedge funds holding the bag. And the specs cannot supply real gold.
The second event is that actual producers of gold are only hedged 37,463 contracts, or 3,746,300 ounces. That's down from over 20 million ounces last October. This means producers are not going to be supplying much real gold either as even this small hedging is spread out over time, often years. Meanwhile, the eligible dealer inventory that remains on the Comex has been disappearing and is at its low of 1.835 million ounces of gold. Total Comex open interest is 442,341 contracts, or 44.234 million ounces of paper gold.
A closer look at the bullion banksters positioning reveals that three U.S. banks are net short 16,781 Comex contracts, a decline of 24,885 contracts from the April BPR, or a 60% drop. There are 23 non-U.S. banks that report holding Comex gold contracts. Their net-short position in the May BPR was 22,474 Comex contracts, a decline of 21,979 Comex contracts from the April BPR, or a 50% drop. The biggest banks involved are JPMorgan (JPM) (the most notorious), HSBC (HBC) and Bank of Nova Scotia (BNS).
As you can see from the following chart, the banksters' short position in gold has been steadily reduced since December. As I have suggested, this is largely a function of the need to unwind leasing, engendered by the slow-motion move of physical gold back to Germany (and others). I discussed this change in the leasing regime in a previous blog ("Gold Being Pulled From Depositories To Deal With Repatriations"). I believe the consequence is that the Fed needs some of its leased-out gold returned. Secondly, the huge physical demand out of Asia after the bear attack is a wake-up call for bullion banksters to get out of the way. The bullion banks are NOT set up to exploit further POG weakness. The hedge fund and speculative community are on their own and exposed.
Chart Source: Nick Laird
Japan also witnessed the halting of its absurd JGB bond market on Friday due to the rapid rise in yields. The 10-year bond closed at 0.7 basis points, a rise of 16% from Thursday. Japanese investors are now dumping their Japanese bonds and buying "high quality" European bonds like the Italian and Spanish sovereigns. This is an accident waiting to happen. Elsewhere in you-can't-make-this-stuff-up la-la land, bank loan delinquencies in Ponzi-unit Italy rose by almost 22% to 8% on bank loans outstanding.
Despite the collapse of its currency, there are no signs (yet) from Japan of a rush to hold gold. You can add the Japanese to the list of foils and bag holders joining the gold short speculators. It's quite another story in India and especially China. I will be posting a blog Monday morning that addresses the potential for a speculative run in precious metals from the latter.
Italy 1o-Year Sovereign
Chart Source: Bloomberg