Jun 302015

UPDATE 2nd July: Please see this post for a correction to some of the statements I made below, it is unlikely that total precious metal derivatives have declined.

Yes, you heard that right, the US Office of the Comptroller of the Currency’s (OCC) latest quarterly report show a reduction in total precious metal derivatives from $106,293 million to $75,620 million. This is at odds with Zero Hedge’s post first, ask questions later approach where they say that there was a “237% increase in the total amount of precious metals (which include gold) contracts in the quarter”.

Zero Hedge get their percentage from a graph from the report (see below) that does show a big jump. However, if you look more deeply into the Table 9 figures they also featured, it becomes clear that the chart is most likely a mistake.

In the picture below I have drawn lines from the tables to the chart, to show where the chart is getting its figures from. For Q1 2015 you can see with the green lines which Precious Metals figures from Table 9 their chartist has used. Note that in the Q1 2015 report this table refers to the total of gold AND the other precious metals.

For Q4 2014 you can see with the red lines that the chartist has used the figures from the column named “Precious Metals”, mistakenly thinking that because this column has the same name as those from the Q1 table, that the figures refer to the same thing. This is not correct, as the Q4 Table 9’s “Precious Metals” means the other white metals only.

OCC PM Derivatives

A true apples with apples comparison would add up both the gold and precious metals figures (see purple circles) from Q4 2014 . If you do this you get a total precious metal derivative notional amount of $106,293 million for Q4, which declined 29% to $75,620 million in Q1. Such a decline doesn’t make for much of a meme that the OCC is trying to hide a radical increase in gold derivatives.

Indeed, if you take the last twenty years or so of OCC gold derivative figures and eliminate the effect of changing metal prices to convert them into notional tonnes to see what has really been going on in the gold market, you get a chart like the one below.



You may be surprised to see this chart showing a very dramatic decrease in bank gold derivative activity, as the impression most gold commentators give is that gold speculative derivative activity by banks is huge and increasing. A fair part of that decrease is the result of miners reducing their hedging (see here for a comparison of the miner hedge book versus OCC derivatives over time).

It is unfortunate that the OCC has decided to lump gold in with the other precious metals as it means we will no longer be able to estimate the notional tonnage of gold derivatives with any accuracy – yet another blow to transparency in the gold market. But whatever the reason for the change, it certainly isn’t an attempt to hide any massive increase in gold derivatives.