Loading ...@ Turd et al
I often find myself engaging in wishful (conspiracy) thinking. I guess it helps me keeping up the spirits on days like this. So here is another one of my what-ifs:
I think it was Bohemian who commented the other day that there was a specific reason for Blythe to go public on CNBC like she did – that she wanted to go on record stating the “truth” that JPM itself did not have any proprietary directional bets and that JPM was only acting on behalf of customers. With that statement she basically said that JPM did not have a concentrated directional bet, but one of their clients did.
A while ago I speculated (maybe wildly) that a reason the East keeps supporting the US bond market at roll over (not adding – but still rolling over maturing debt) and the reason that the West accepts the continued flow of Gold to the East was because the East had started demanding that the interest on the debt was paid in gold instead of debased USD.
Now you, Turd, say that the round numbers going in and out of JPM suggests that the quantities are shipped as kilo bars instead of the less precise LGD bars. We also think we know that the new international trade/foreign exchange settlement system will have a relationship to newly refined and assayed kilobars. If it is not just paper bogus numbers, this suggests that JPM is a facilitating partner/participating in the new trade settlement system with China already now.
Also, remember how the Fed opened the Treasury auction system with direct access for the Chinese, so transactions could happen without primary dealers knowing about it? Back then it was only for buying USTs – not selling – but who knows what the access is used for really. And remember how 4 chinese Commercial Banks were licensed all of a sudden to operate in the US, one of which was the industrial and commodities bank, as far as I remember. And remember how JPM sold their commodities business off to Mercuria all of a sudden (other banks did the same and I think they also started getting out of the LME warehousing biz, if I remember correctly).
I think the East + Middle East wants commodities trade to become truly physical again (I remember a Saudi ex Oil Minister saying something like that back in 2008, I think) – and I think that they have said no commercial bank can be involved in commodities trade unless it is plain vanilla producer selling forward facilitation and that everyone else must back trades with phys to participate. I also think that they would love to see naked shorts fry in their own fat one day partly as punishment for distorting the market and partly as a necessity to provide justification for the profound changes introduced to the market after the BBQ.
Andrew Maguire once said that the big Eastern buyers in London did not take any prisoners. I believe him.
I tend to think that JPM is the conduit between the Fed and the PBOC. And that it is true that the big deep pocketed Comex long is China – and that the shorts provoking waterfalls via JPM were/is China too. And that JPM is receiving Gold from the Fed, facilitates a conversion to Kilobars while “in storage” and then ships the Gold East on the books. Whether it is refined in Switzerland or the US is less important for the “external” books, I guess.
@ Turd: Do you know if the house account is merely a book keeping thing or if that necessarily entails physical storage in the Comex warehouse in the US at all times? (Not allowing for a transfer out for refinement and back again). And do you know if anyone has examined the US export numbers (you know the ones that once upon a time showed enormous amounts of gold colored paint exported) for the US lately? (as in since the Chinese banking licenses and opening of UST system and Blythe’s appearance on CNBC?)
Anyways – looong intro – I am thinking that if it is true that the East is out to fry the paper speculators and the algo-rapists and China is the big Comex long and the primary Comex “waterfall short” to unlock as much physical in London as possible at as low prices as possible – is the current thrashing not exactly what you would expect to see?
If I was the Head Gold Procurement Officer in China, I would consider the Swiss vote and consider if there would be anymore phys to wring out of the general market at lower prices before the Swiss potentially joins the party and spoils all the fun. I would also like to finish off planned “interest rate” transactions (my speculation) via JPM before other countries see the Swiss vote result and potentially begins asking the Fed for stored Gold like the Germans did.
A smack lower would achieve Gold looking unattractive to Swiss voters, while testing if anymore strong hands can be chopped off before finding a new price range presumably higher (according to JW, Kirby, Organ) to explore.
I am also wondering – if this smack down shows that no more phys can be extracted at this level – if the Chinese would then go ahead and spring the Shanghai surprise (as per JW) before the Swiss vote in order to ensure that China gets to buy the first wave of unlocked phys at higher prices and not the Swiss – in case the vote is a yes.
If they sprung the surprise after a smack down but before the swiss vote they might even achieve an impact on the Swiss vote in favor of gold and thus provide a significant demand for phys in the market for 5 years going forward – helping to stabilize their surprise as correct and support the physical market in Shanghai.
If this current price level is “dry” and they did spring the surprise, they would achieve a perfect storm:
1) Get retail phys before the Swiss.
2) Have comex contracts in front of the Swiss in the line for delivery, when the mines have produced and delivered to the Comex, as I don’t believe that China would accept cash settlement, but still use a potential default as marketing for the new system.
3) Fry the shorts, who cannot deliver phys, to hell and back both in dollar losses due to rising surprise price and due to lawsuits that will last the next decade – setting a solid example. This is assuming there are any entities willing to open new contract longs that the shorts can buy back to close their burning shorts.
2-3a) Alternatively, if no new entities are willing to open new contracts, China’s Comex long position can be used not to demand delivery – but to control precisely how long the shorts will fry as it will be the current Comex longs who decide when they are ready to sell and allow the shorts to buy to cover.
4) Fry the broader paper gold derivatives (as per JW) – which will make the Shanghai exchange look more attractive – and set a solid example. It might even provide justification that currency trading involving the XAG and XAU crosses can only be done with physical deposit to the brokerage in the future.
Just a bunch of rambling, I know. Just thinking out loud. Though – I really do believe that when China & Co. are ready (as in no more phys to be extracted at current levels) – they will indeed take no prisoners.
