A word on Platinum and Palladium; The other Precious Metals

Jim H
By Jim H on Sat, Mar 7, 2015 - 1:12pm

Platinum and Palladium are assets that I believe any real asset investor should consider at least a small position in.  While they don't have as long a history in use as money vs. Gold and Silver, both metals can currently be had as sovereign minted coins, some of which are quite beautiful, such as the Russian Palladium ballerina series minted 1989 - 1995. 74424_Obv.jpg?v=20130101120000&width=450&height=450

And by the way, about 50% of world Palladium production comes from Russia.  When you include South Africa you are now accounting for 80%.  Keep that in mind as we talk about how price discovery works for these lesser held PM's... (hint:  Pt and Pd futures trade on the Comex, playground of the Western Bullion Banks).

Platinum and Palladium are more like Silver (than Gold) because the vast majority of current demand comes from industry.  Both are used as catalysts - both are used in automotive catalytic converters.  When visiting one of my high purity chemical suppliers in TX recently I was able to ascertain that they use Palladium as the hydrogenation catalyst in the anthraquinone cycle for hydrogen peroxide production.  Bottom line is that these are uniquely useful metals that are readily available (for now) in good store-of-value form (coins and small bars).

The industrial use angle is of course a double edged sword;  If we believe that a full on economic collapse is imminent, then industrial demand could plummet, which is not supportive of the price of that asset.  But as Chris has stated many times, we are told the price of things by today's distorted markets.. but we are not being told the true value of things.  It is up to us to dig, to connect dots, and to attempt our own determinations of what is overvalued (a short term Portugal bond with negative interest anyone?) vs. what is undervalued (an ounce of Palladium minted into a beautiful coin for $860 dollars?).

     http://www.apmex.com/product/14264/1987-bermuda-1-oz-palladium-sea-ventu...

Another thing to be aware of is this;  These metals are quite rare.  Really rare.  There is 100X more Silver mined on a yearly basis vs. either Pt. or Pd.  There is 10X more Gold mined on a yearly basis as well vs. either Pt or Pd.  This means that almost any meaningful swell in investor demand for these metals would quickly alter the market dynamics.

Although I bought my first ounce of Palladium (a Canadian Maple) last year based on my own view of fundamentals, I write this piece today because of some new information I came across as published by Ed Steer under the banner of Casey Research.  The bottom line is this;  The Bullion Banks had only very small interest in these metals leading up to the financial crisis of 2009.. which most of us here understand to be a crisis of the fatally flawed debt-based money system itself.  After 2008-2009 the amount of bank short interest increased dramatically into what many consider incontrovertibly to be manipulative short corners.  My own interpretation of the data shown the charts is that the powers behind the Western banking cabal are not going to allow any money-like asset class...not Gold, not Silver, not Platinum, and certainly not (Russian) Palladium, to send signals to the market that would belie increased demand.  Signals that would cause the herd to notice.   

The Ed Steer piece is below... I cannot tell you that the price of Platinum or Palladium is going to rise any time soon.  The Pt and Pd charts come toward the end.. after the Gold and Silver charts.. so be patient as you read.  We all have to decide for ourselves whether we believe that the data suggests officially sanctioned, suppressive manipulation.. because if it does.. one can make a strong case that the markets are under pricing that asset, and that a reset is ahead.  For me, the data supports my view of manipulation.  Why on earth would Palladium... should Palladium, be the second most shorted commodity in existence on a days-of-production basis?  Why do banks care so much about Palladium?      

Will this under pricing stop price from dropping further in an unfolding Ka-Poom scenario if the FED actually raises interest rates and the world falls into a clear recession prior to the next round of FED printing interventions?  Probably not.  The most conservative advice would therefore be to hold some cash in order to buy when there is blood in the streets ahead, much as Chris has described he hopes to do when it comes to wooded acreage near near his town.  Just be aware that this is risky business when you are talking about assets as rare as Platinum and Palladium in minted form.  Like tickets to a Hozier concert (I saw him with my daughter last night in NYC at the Beacon - OMG is he talented) the store shelves can empty very quickly.  I therefore am opting for picking up some now.. hopefully more later.

 http://www.caseyresearch.com/gsd/edition/chinese-gold-fixing-to-have-decisive-influence-on-global-prices

Here's Nick Laird's now famous "Days of World Production to Cover COMEX Short Positions" of the 4 and 8 largest traders in all physical commodities on the COMEX.  I note that the short positions of the Big 8 traders in silver has dropped from 156 days down to 141 days of world silver production.  How's that for a short-side market corner?

Along with yesterday's Commitment of Traders Report came the companion Bank Participation Report [BPR] for the month of March.  And as I said in yesterday's missive---"This is data extracted directly from the COT Report, which shows the COMEX futures contracts, both long and short, that are held by the U.S. and non-U.S. banks as of Tuesday's cut-off."

In gold, '3 or less' U.S. banks are net short 38,437 COMEX gold contracts, or 3.84 million troy ounces.  That's an improvement from the 5.67 million troy ounces that they were short in February's BPR.

Also in gold, '22 or more' non-U.S. banks were net short 51,151 COMEX futures contracts in gold, or 5.15 million troy ounces, which is down from the 7.63 million ounces they were short in February's BPR.  And I'm still of the opinion based on CFTC data from October 2012, that Canada's Scotiabank holds about one third of the non-U.S. bank short position all by itself.

Here's Nick's chart of the Bank Participation Report for gold going back to 2000.  Charts #4 and #5 are the key ones here.  Note the blow-out in the short positions of the non-U.S. banks [the blue bars in chart #4] when Scotiabank was outed in October of 2012.

               

In silver, '3 or less' U.S. banks hold 3,865 COMEX contracts on the long side---and 17,364 contracts on the short side, for a net short COMEX position of 13,499 contracts.  [This compares to the 18,968 contracts these '3 or less' banks held net short in February's BPR.]  JPMorgan currently holds both long AND short contracts in silver, but it's a 100 percent certainty that they are net short a minimum of 15,000 contracts, which is more than the March net short position on its own.  The other two U.S. banks that could be on the long side would be HSBC USA and Citigroup.

Also in silver, '12 or more' non-U.S. banks are net short 22,734 COMEX futures contracts, an improvement from the 28,753 COMEX futures contracts they were short in February's BPR.  And in silver, as in gold, it's my opinion that Canada's Scotiabank is net short about 80 percent of this amount all by themselves.  As I've been saying for many months, it's also my opinion that Scotiabank is now the big silver short on the COMEX, but with JPMorgan not far behind.  Between them I'd guess they're short more than 30,000 but less than 35,000 COMEX contracts.

Here's the BPR chart for silver.  Note in Chart #4 the blow-out in the non-U.S. bank short position [blue bars] in October of 2012 when Scotiabank was brought in from the cold.  Also note August 2008 when JPMorgan took over the silver short position in Bear Stearns---the red bars.  It's very noticeable in Chart #4---and really stands out like the proverbial sore thumb in chart #5.

In platinum '3 or less' U.S. banks are net short 5,226 COMEX futures contracts---and that's down from the 7,522 contracts they were net short in the February BPR.

Also in platinum, '17 or more' non-U.S. banks are net short 8,469 COMEX contracts, down from the 9,782 they were collectively short in the February BPR.  It's a given that only one or two of these non-U.S. banks hold a material short position in this metal, at least compared to the gross and obscene short positions held by the '3 or less' [more likely '2 or less'] U.S. bullion banks.  That means that the short positions of the remaining 15 banks are not material, unless they're all trading together on cue---and it's impossible to know that.

Here's the BPR chart for platinum---and please note that the banks were never a factor in platinum until mid 2009.  Now look at them.  If you want to know why the platinum price isn't going anywhere, despite the supply/demand fundamentals, look at the total long positions the banks have vs. their collective short positions.  Palladium too!  That tells you all you need to know.  The banks are net short 20 percent of the entire COMEX futures market in platinum.

In palladium, '3 or less' U.S. banks are net short 8,285 COMEX futures contracts.  They've held this size of short position almost continuously for the past five months running.  They are net short a bit more than 25 percent of the entire futures market in this metal.

Also in palladium, '12 or more' non-U.S. banks are net short 3,085 COMEX futures contracts, that's an increase from the 2,370 contracts they were net short in February's BPR.  These non-U.S. banks are net short 12 percent of the COMEX futures market between them.  And unless they're acting in collusion, their short positions are immaterial.

Here's the BPR chart for palladium updated with the March report's data.  Just look at the long positions vs. the short positions held by the U.S. banks in Chart #5.  You couldn't make this stuff up!  You should note that the U.S. banks were almost nowhere to be seen in the COMEX futures market in this metal until the middle of 2007---and they became the predominant and controlling factor by the end of Q1 of 2013, where they remain today.  I would bet that JPMorgan holds the vast majority of the U.S. banks' short position---and maybe all of it.  Palladium as well.  And how about silver?

Along with a couple of Wall Street investment houses, these are "da boyz'---the sellers of last resort---and you can call them what you like.  Until they decide, or are instructed to stand back, the prices of all four precious metals are going nowhere---supply and demand fundamentals be damned!

As Jim Rickards so correctly put it, the price management scheme is now so obvious, they should be embarrassed about it.

 

 

             

    

      

 

 

5 Comments

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 364
Thanks Jim

Excellent piece on price suppression with supporting documentation

The banner on the CFTC website made me chuckle, "Ensuring the Integrity of the Futures and Swap Markets".

I tend to wander between the two camps of your price suppression view and Dave's market forces view almost on a daily basis. Today I'm in the price suppression camp :)

From the perspective of the banks they must view gold as a competing system to their product of credit. I suspect that if the bankers had their way they'd round up all monetary commodities and blast them into space, then they wouldn't need to bother with the troublesome pastime of shorting the futures markets.

What stands out for me is that they were net short all the way back in 2004 (on the gold chart) as the price was rising to its peak at the end of 2011. I'm pretty sure that if I'd have done the same thing I'd be homeless by now. Still, they have the advantage of conjuring up currency out of nothing...

Again, thanks for the charts. I'd never seen those before

All the best,

Luke

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5061
effective suppression

Luke-

What stands out for me is that they were net short all the way back in 2004 (on the gold chart) as the price was rising to its peak at the end of 2011. I'm pretty sure that if I'd have done the same thing I'd be homeless by now. Still, they have the advantage of conjuring up currency out of nothing...

Let's assume for the purposes of argument that if "the banks" (or anyone else) is engaged in long term suppression today, their basic motivations for suppressing PM has not changed in the 44 years since the gold window was slammed in 1971.  Back in the day (1980) the Treasury actually sold gold into the market to try and stop the price from rising.  They were clearly engaged in suppression activities back then.  It didn't work.  Market sucked up all that gold and kept rising.

As you point out, "someone" has been short the market for a long time, and yet - how could that bull market have possibly happened from 2001-2011 in the face of all that horrid, scary, powerful naked shorting going on?  With infinite money behind them, no less?

There are only three possibilities:

1) They weren't really trying before.  They only started to care after 2011.

2) Suppression scheme has been in place forever, but was overpowered by market forces from 2001-2011, and then those same market forces switched sides after 2012 and started selling instead of buying for some reason.  After that point, forces of suppression were victorious (finally!  after 12 years of failure!).

3) No (long term) suppression activities are taking place; it's just market forces in play.

Option #1 (changing motivation) violates both historical fact, and also the charts that Jim himself is presenting.  If Treasury was trying (and failing) to suppress the gold rally in 1980, and is engaged in suppression today, presumably the historical enthusiasm for suppressing gold has been in place continuously over the years - and certainly since 2004.

Note that options #2 and #3 are functionally equivalent.  Market provides the decisive force.  Forces of suppression, assuming they exist and are working hard every day, cannot keep back the tide any more than King Canute could, any more than the SNB could, any more than the Bank of England could - and indeed, any more than the US government could right before the gold window was slammed in 1971.

Once that decisive force turns from buying to selling, it doesn't really matter what the forces of suppression do.  Price will decline all on its own.  Once buyers return, forces of suppression will be powerless to keep the price from rising, just as it did from 2001-2011.

Suppression may or may not exist.  But it is ineffective.  How else can you possibly explain the bull move?  Evidence, guys.  Evidence.  Look at evidence, not at your favorite Deux Ex Machina to explain why My Precious isn't doing what you want it to!

Jim your very own suppression evidence says the suppression campaign doesn't work!

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 364
Market Forces

Dave,

Firstly, thanks for the reply.

Secondly, I was thinking about that today. That, as you say, despite the shorts, price still rose. Another thing I was pondering is where would the price be without those shorts? I don't have an answer for that one.

If i were to guess I'd say that gold is not currently in the lexicon of the West.

Also, I've spent the last hour trying to find charts to disprove your point about deflation mentioned in another thread but i didn't get any joy. My theory was that if I could find price crashes in oil that did not correlate with gold i might be on to something that couldn't be explained by operating costs.

However, if you glimsp at the 8 year chart for WTI Crude it's a solid smash from $140 to $50 over 2008 to 2009. Do the same for gold and it tracks; $950 to $700. Gold rises again with the cost of oil but takes a tumble slightly earlier (gold falls in 2013, oil in 2014). This is what I don't get. Did people get spooked? I suspect people started selling gold at that point - not traders per se, but the ordinary man on the street. I remember there being a lot of cash for gold adverts back then. People struggling to make ends meet would have cashed in and flooded the market with gold. Gold being at all time highs and all. And maybe that's where we're at as a society - people needed to trade gold for cash to pay bills denominated in dollars and pounds. Sad, really. 

Back in the market forces camp :) Although, in fairness, I'm more interested in tomato seeds, onion bulbs and raised beds at the minute. Spring is here!

All the best,

Luke

 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5061
fair price for gold

Luke-

Another thing I was pondering is where would the price be without those shorts? I don't have an answer for that one.

I think your question is a great one.  Is the price unfairly low - or high?

It has been said as part of the standard goldbug propaganda line (one I actually believe in - I have been successfully brainwashed!) that gold maintains its purchasing power over the years.  That from Roman times, through until today you can buy a "nice suit of men's clothing" for one ounce of gold.

So being a casual guy, I end up in cargo pants or shorts and a tee shirt 99% of the time, so I'm not so clued into how much a nice suit costs these days.  More than $1200?  More than $5,000?  $50,000?  I mean, I'm sure a $50,000 suit would be really nice, but I suspect that's not what they meant.

So to ground the discussion, perhaps its best to ask, what kind of suit could you get back in 1910 for $25?  Is that roughly equivalent to what you could buy today for $1200?

I found a reference to a man's suit for $30, pre-war.  That is "roughly" one ounce of gold.

Again, we can't focus on money supply, we should focus on purchasing power instead.

And that's also why I say gold tends to track commodity prices, generally speaking.

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
Global Platinum Shortfall (mine supply vs. demand)

http://www.mineweb.com/news/platinum-group-metals/global-platinum-shortf...

The "official" explanation for how price has not responded, from the above article;

“We also looked at a full year forecast for 2015 and, while all the fundamentals are strong, we expect another deficit (235 000 ounces),” said Wilson, adding that the shortage hadn’t been reflected by an inflation in the platinum price because producers had been able to draw on previously built inventories to satisfy some of the demand.

This is illustrated in the report, where above ground platinum stocks are shown to have been substantially depleted, sitting at 2.76 million ounces and down by a third from 4.16 million ounces in 2012.

Ed Steer's explanation, which I heartily endorse, as represented by my article above;

I'd love to know where these above-ground platinum stocks this gentleman is referring to are actually located.  He seems to know these reserves down to the ounce, but the big question remains---where are they?  Of course platinum prices, just like gold and silver prices, are going nowhere until JPMorgan et al are told to stand aside.

http://www.caseyresearch.com/gsd/edition/chris-powell-gold-market-sentim...

 

 

 

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