The CME/Comex And Truth In Reporting

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The above legal disclaimer mysteriously, and with no explanation, showed up one day on the Comex gold and silver warehouse stock reports about 8 months ago (roughly). After several years of publishing the warehouse stock reports, why all of a sudden did the CME feel compelled to stick this disclaimer specifically on the gold and silver warehouse reports?

I bring this up because I was having a discussion with a couple of long-time colleagues about the unprecedented level of manipulation of gold and silver that is occurring specifically on the Comex and primarily during Comex trading hours. Today's activity is a perfect example. And the behavior of the price action in the paper Comex market completely defies the unprecedented amount of physical gold being bought for accumulation by Asia, Russia and the Middle East. In fact, India and China together are on track to inhale more gold in 2013 than is currently being produced by every single gold mine globally this year.

The nature of the discussion had to with the fact that, according to the CFTC Commitment of Traders report (COT), the four biggest gold futures traders on the Comex are, and have been, net long a record amount of gold contracts. In an ordinary, unmanipulated and uncorrupted system, that positioning stance would be extraordinarily bullish.

But my view is that the data being reported by the CME/Comex and the CFTC is not to be trusted. In fact, if we could get a completely independent audit done of the CME/Comex, I think we would find a fraudulent horror show there beyond anyone's imagination.

But then there's Ted Butler. He'll tell anyone who wants to be spoon fed by his drivel that the CME/Comex numbers are 100% accurate and there's no fraudulent reporting. And it's pure speculation on Ted Butler's part that it's JP Morgan who's long Comex gold futures - he's the originator of the idea. I place a heavy discount on anything Butler speculates on that I can't verify with my own eyes.

The other BIG problem with basing analysis the way Butler does - and he unbelievably puts full faith in the notion that the CFTC/COT reporting is accurate and honest - is that I do not trust the data that is reported by the CME or the CFTC. The CFTC COT report is based on the data it gets from the CME. The CME bases its reports on the data it gets from the banks. Obviously the CME recently put a legal disclaimer on the data coming from the banks. But then again, Butler has to maintain religious-like faith that the CME/Comex reports are not fraudulent because he makes a healthy living selling newsletter subscriptions to his newsletter that is based on analyzing that data. He has no choice but to believe the data is uncorrupted.

IF the banks are honestly reporting the CME data, it would be the ONLY aspect of their financial reporting that is being done honestly. The irrefutable laws of probability would suggest that the CME/COT/open interest reports are fraudulent, just like every other aspect of the Comex. Let's take JP Morgan as an example. In it's latest earnings report released today, it reported that it is taking $9.2 billion in pre-tax legal expenses this quarter. This is $9.2 billion that JPM is forced to spend to defend itself from the very type of fraud and corruption in every other aspect of JPM's trading and banking business that Ted Butler says does not exist with respect to JPM's reporting of its trading positions and its gold/silver warehouse stock on the Comex.

I know that myself and several other long-time precious metals and financial market professionals are confident that JPM's warehouse stock report is full of fraud - that most of the gold/silver it reports is either not there or is sitting there but has been hypothecated in some form. It would be a mistake to overlook the fact that the MF Global bankruptcy and fraud case - with which JPM was intimately involved - has set the precedence in terms of protecting banks who hypothecate customer assets. I highly suspect that the daily open interest positions reported by JPM and the other banks is also corrupted.

If Ted wants to believe that the CME/CFTC/Comex data is accurate and honest, I have a bridge that I own that connects the upper east side of Manhattan to the borough of Queens that I would love to sell him. What's your bid, Ted? And, just for the record, I was highly critical of Ted's undying view in the early 2000's that eventually the CFTC would crack down on the obvious manipulation of gold/silver on the Comex by the big banks and specifically JPM. He was wrong then and he's wrong now.

That tragedy of all of this is that the crime/corruption/fraud on the Comex reflects the same on all of Wall Street and, in fact, our entire political and economic system. This country's "wealth" has been built on the back of the giant Ponzi scheme that is the U.S. Treasury market and the $17 trillion in debt that has been issued to keep the system alive. In other words, our entire system of economics and politics is one giant facade of complete deception. And I'm not even addressing here the massive insolvency of the cities, States and public/private pension funds.

This will not end well. The volatility exhibited by the economy, the stock market, the political situation in DC and in the gold and silver markets - especially the latter - reflects just how broken and corrupted our system is. Try to enjoy what you can, while you can - because there's no telling when the inevitable occurs and life becomes extraordinarily unpleasant for everyone.