The potential 11 tonne naked short on August gold may be a BANK. Any bailout would be nearly double the size of prior bailouts.
Let the scrum for physical begin.
August 16, 2024 10:21 AM
Yesterday (Aug 15, 2024) I wrote a piece about 11.1 tonne of gold being undelivered on the August contract which is very high for this late in the delivery period. Furthermore, it is the profile of open interest (a lack of OI decline) that implies a large short is not delivering metal. On August 8 open interest was 3,859 and as of this morning (Aug 16) OI was 3,573 … only a 7% reduction. The inference is that someone is holding a large short and not delivering metal.
Link to yesterday’s piece:
Yesterday’s trading activity highlights the situation as 80 net new contracts were written and delivery notices were subsequently issued for 80 contracts. Typically when new contracts are written late in the delivery period the short issues delivery notices promptly as likely happened yesterday.
In my assessment, the 3,573 contracts open in the morning continue to be undelivered. If you want to nitpick my interpretation … yes, the 80 delivery notices could have been from contracts written weeks ago and I’m wrong. However life is about patterns and that’s what I use to interpret comex public data.
Watching the patterns over the last few years I’ve observed 5 other late contract life bailouts ranging from 570 contracts (1.8 tonne) to 1,823 contracts (5.7 tonne). In each case it appeared that Citibank or BofA did the bailout in the final days of the contract.
Just to clarify … I know who did the bailout because their name shows up on the issues and stops report. I do not know who was the naked short was because their name is never posted publicly.
And FYI, a bailout could occur at any time. It is most obvious when it occurs late in the delivery period, so there could have been others which I cannot identify.
I wrote 2 key pieces on bailouts as follows:
Original piece, Sept 25, 2023
https://econanalytics.substack.com/p/citibank-draws-the-short-straw-and
BofA bails out 2.1 tonne, March 27, 2024
https://econanalytics.substack.com/p/bofa-does-another-last-minute-bail
Updating the plot from the September 25, 2023 piece results in the following plot of bailouts since 2022:
As you can see, if this 3,573 contracts ends up being a naked short bailout it would be the largest since (at least) 2022 … and almost twice as large at the 1,823 contract bailout by BofA on the November 2022 contract.
So who deals in positions of 11 tonne of gold within 1 contract? Not many. I looked at all parties who sold more than 3,000 contracts (9.3 tonne) within one contract period since 2022. That has only occurred 17 times so a short position this large is rare.
There were only 8 parties involved on those 17 occasions. Five of them were bank house accounts (BofA, Goldman, HSBC, Standard Chartered and JP Morgan) and 3 were customer accounts (Barclays, JP Morgan and Morgan Stanley).
Firms selling more than 3,000 contracts during one contract month since 2022:
So … the plot thickens. Based on the few parties who deal with a tranche of 11 tonne of gold, it’s not unreasonable to think that it is a bank who has the naked short.
Someday there will be a scrum for physical and this gentlemanly idea of bailouts for a token fiat payoff will cease.
11 ton x 32,150 oz/ton x 2000$/oz = zero billion 700mm
I think they'll survive
Maybe that's why gold is up today and silver tamped down as usual.