May 14, 2013
The Volcker Rule was supposed to be implemented and enforced by now. As part of Dodd-Frank, the rule set out to establish limitations on proprietary trading by financial institutions. But the “big banks” have successfully delayed its implementation. The “Too Big to Fail” industry is not only making money with their prop desks, but also helping to keep the illusion of a sound dollar. Using evidence provided by, of all places, the CME and its daily delivery reports, one particular firm is shown to be isolated in the efforts to keep precious metal prices contained.
Every trading day, the CME releases a report like this one, identifying the details behind all futures contracts being executed for physical delivery.
So who’s doing the selling and who’s doing the buying? Data from these reports show that since at least the beginning of 2013, JP Morgan has been on the opposite side of the trade against most of the other players in gold and silver.
These first pair of charts show the net daily change in physical deliveries by all futures traders who are either issuing (delivering) or stopping (receiving) metal, excluding JP Morgan’s client and proprietary trading desks. (Click on the charts to enlarge.)
If JP Morgan’s activities are ignored, on a net basis there’s more accumulation of physical gold rather than selling and that trend has consistently grown since the beginning of the year. For silver however, it’s the opposite – more selling of physical silver than buying.
Now let’s find out who everyone is buying gold from and to whom much of that silver is being delivered. The following pair of charts show the same data, limited only to JP Morgan’s client & proprietary trading desks.
These charts are perfect mirror opposites, which is expected since the issues and stops for every trading day should always be a zero-sum result. But what is alarming is the consistency of the trends and the magnitudes of the issues and stops. One entity has been steadily increasing its supply of gold to the market, which now stands at 2.2 million ounces. That’s over 70% of all the gold deliveries year-to-date (about 3 million ounces). And that same entity has taken a net delivery of 4 million ounces of silver from other traders, which is less intensive as it only represents 10% of the 35 million ounces delivered year-to-date by the entire market.
Let’s break it down further. JP Morgan’s prop desk has a net issuance of 1.5 million gold ounces since the beginning of the year. That represents 50% of the total gold deliveries year-to-date. And in silver, they had been buyers until April 29 when they issued 7 million ounces from their proprietary account. On April 29th, that 7 million ounces represented 25% of the 28 million total ounces of silver delivered by the market year-to-date. (It’s interesting to note that it was also 100% of all the deliveries made that day!)
JP Morgan’s client account has issued nearly 700K gold ounces so far this year. Their clients’ silver stash, however is still accumulating.
In their gold trading, it doesn’t look as if JP Morgan is trading against their own clients. On the contrary, they seem to be working in concert. But in silver, their prop desk hasn’t made a move since the first day of the May contract delivery, when they dropped those 7 million silver ounces. A large chunk of that went to their own clients, who’ve continued to accumulate in the first weeks of May.
So here we have physical evidence beyond that which has been continually displayed in the CFTC’s COT & BPR reports. The same conclusion can now be reached via the physical or paper market perspectives.
Just imagine if JP Morgan’s prop desk had been terminated as the Volcker Rule went into affect. Who would have supplied all that gold to the market? Without the prop desk, the futures contracts would have been distributed more evenly across the market. There’s no doubt that prices of precious metals would be a lot higher without JP Morgan’s concentration.
We invite readers to verify all this for themselves. Historical reports may be difficult to find, as the CME’s web site doesn’t appear to make them available, though they do provide high-level summaries by month and year-to-date. But here’s a zip file containing all their daily reports since the first of the year, which give all the juicy details.