J.P. Morgan Vault Doubles Registered Silver

I think this is very significant. J.P. Morgan's vault just recorded a doubling in registered silver coming from eligible silver.

You know what that means, allocation of silver, which means someone wants delivery. Open interest will start to come down with the decline in total silver stock.

Be prepared for the reversal in silver price.

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COMEX gold update: J.P. Morgan converts almost all of eligible gold to registered gold

And again, over the weekend, J.P. Morgan converted its eligible gold into registered gold. I predict that we will see the total gold stock decline once again as a rise in registered gold means people will take delivery.

J.P. Morgan has now almost converted all of its eligible gold into registered gold.

Chart 1: Gold Stock COMEX

On the silver stock, we don't see anything significant happen yet.

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J.P. Morgan Converts Almost Half of Eligible Gold to Registered Gold

I couldn't believe my eyes when I saw this. Suddenly we saw the J.P. Morgan vault get almost half of the eligible gold converted into registered gold.

I have seen this before... I think someone wants delivery. Let me do some research on this...

Edit: Yes indeed, we saw J.P. Morgan do the same with silver a year ago here in November 2011 (right before a huge rise in silver price). The consensus was that they are preparing for a large delivery to someone. They increased registered stock to prevent a COMEX default. This is also a sign of loss of confidence in paper gold and silver.

Let's see what happens next, probably a decline in total stock.

Chart 1: Gold Stock COMEX

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J.P. Morgan: Very Large Shift from Registered to Eligible Gold

It's official, registered gold and silver is being dumped. That means that open interest is declining in the COMEX. Why this is you can find out here: http://katchum.blogspot.be/2012/12/comex-gold-stock-keeps-declining.html

With that also the manipulation will end. And look who is transferring this registered silver and gold bullion into eligible assets. Yes, J.P. Morgan.

J.P. Morgan's vault has 40% less physical gold and 16% less physical silver in just one day. Suddenly, the amount of registered gold has hit a multi month low.

Chart 1: COMEX Gold

Chart 2: COMEX Silver

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The Correlation Between Open Interest And COMEX Stock Levels

Just a few days ago, I reported that J.P. Morgan vault had a significant amount of eligible gold taken away. I didn't know what it meant.

Today, another 175000 eligible gold was taken away, this time by HSBC and J.P. Morgan, who are seen to be the main manipulators in the precious metals market.

This is all nice to report, but I still don't know what it physically means.

But let's try to understand the CFTC market and COT data.

First off, when open interest increases in gold (Chart 2), it means that inventory needs to be replenished. Analogy: if you get increasing orders (higher open interest), you should have a higher stock level to meet demand.

So if open interest increases on Chart 2, registered bullion stock levels should go up too on Chart 1. We can see that Chart 1 and Chart 2 correlate very well. Also, Chart 3 and Chart 4 correlate very well too.


Gold:

Chart 1: Gold COMEX Stock

Chart 2: Open Interest Gold

Silver:

Chart 3: Silver COMEX Stock

Chart 4: Open Interest Silver

If for one or another reason, the open interest goes up, while the inventory doesn't go up, then we have a problem. The most likely reason is a shortage of bullion gold/silver. That's when you need to worry about physical shortages. So that's important to monitor.

So actually it's very handy to monitor the COMEX stock levels and compare it to the open interest chart of the CFTC.

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China Buys Out London's Crown Jewel

As China becomes more and more a leader in the global economy it is not only purchasing the largest amounts of commodities, but is also starting to buy up strategic assets. This time China bought a legacy of 135 year, right in the heart of London.

Over this weekend (16 June 2012), China bought out the London Metal Exchange (LME) for 1.38 billion pounds. This means that J.P. Morgan, Goldman Sachs and Metdist are giving up on their shares of the LME. The LME is now part of the Hong Kong Exchange (HKEx).

This event will increase China's monetary flexibility on the base metals front. It is an important addition to China's assets because China is the largest consumer of commodities in the world. The LME isn't a small exchange as it has an 80% share in global futures trading in key base metals like aluminum, copper and zinc. The plans for China with the LME acquisition is to incorporate more Chinese companies on the exchange and to introduce Chinese currency based contracts trading. It will also enable China to use local warehouses for their customers as the warehouses in China are already over capacity (see my previous article about copper in Chinese warehouses in Shanghai).

It is interesting to note that there were other bidders for the LME, namely the CME and NYSE, but they couldn't compete against the Hong Kong Exchange. The LME only makes about 10 million pounds a year in profit, while the buy out price is at 1.38 billion pounds. That's a multiple of 138! Nobody would buy a company with a P/E ratio of 138, but China did. If we look at another metric (trailing net income), China actually bought the LME at a price of 180 times trailing net income, which is the most expensive deal since 2000. This is because the LME has a lot of strategic value in it for China. One of the most important values is that China now can set the pricing and warehousing of commodities around the world. This is because the LME has 732 approved storage facilities in 37 locations in 14 countries from Singapore to the U.S. This fits perfectly with their strategy in becoming the largest commodity consumer in the world.

Following this highly dilutive transaction by the Hong Kong Exchange, investors should first know that the earnings forecast of the HKEx isestimated to go down around 3-5%. Not only due to the high premium of the buyout of the LME, but also due to costs that will occur during the roll-out of the Asian platform to boost the LME's business in China.

Second, I expect that tariffs on contracts will be increased over time. This is because HKEx has the ambition to become the leading exchange platform in China, competing with the Shanghai Futures Exchange. However, the increase in tariffs will not occur before 2015 as confirmed by the HKEx.

Third, due to an inflow of new Chinese customers to the LME, China-related trading will start to increase. Currently, China-related trading volume on the LME stands at only 20%. This buyout event will enable countless Chinese businesses to start trading on the LME. Where in the past, Beijing had restricted Chinese domestic firms to trade on foreign exchanges. As a consequence, China can reduce delays, transit times, business costs and enhance commodity trade flows to China. In other words, China, who accounts for consumption of 40% of the world's commodities, will be able to acquire commodities at a faster pace in the future. It will also be able to start trading in other essential metals like iron ore and steel making coal. I believe this is bullish for commodities in general. Investors can bet on commodities through ETF's like the PowerShares DB Commodity Index Tracking Fund (DBC).

But the most important aspect is that China will have the power to create products on the LME that are denominated in yuan. This is again another step forward for China to compete agains the U.S. dollar as reserve currency of the world. Investors should take this opportunity to invest more of their money in RMB by buying funds that track the yuan, e.g. Market Vectors Chinese Renminbi/USD ETN (CNY).

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J.P. Morgan crashing on high volume, silver manipulation over

J.P. Morgan is crashing on high volume as losses keep piling up. After 2 billion last week, it hit 3 billion this week and I think it will keep increasing.

Chart 1: J.P. Morgan Chase & Co. (JPM)

This interview with Bix Weir discusses the squeeze in J.P. Morgan. 

As Max Keiser points out how the silver market is being manipulated by J.P. Morgan, finally, we see a weakening J.P. Morgan. As all banks were up today, J.P. Morgan was the only bank going down, with news about the cancellation of a share repurchase program. They won't even buy their own shares anymore.

As J.P. Morgan weakens, I predict that the silver price will be unleashed to the upside once the black swan appears.

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