Dec 152015

Last week I wrote about the gold warehouses associated with the CME’s kilo futures contract. Today I’ll have look at the Comex New York warehouses but rather than focusing on the eligible/registered debate, which has been done to death, I want to look at the fight between the warehouses for storage customers and the entrance of JP Morgan into this $30 million per annum business in early 2011 (hence my tacky topical title).

The stacked area chart below shows Comex gold stocks by warehouse. It shows the build up from 3 million ounces to nearly 12 million ounces during gold bull market and then a fall, similar to what we have seen with ETF stocks. The point marked (1) is the entrance of JP Morgan into the vaulting business in March 2011 and their impact on the other two major warehousers, HSBC and Scotia.


A better sense of the impact of JP Morgan’s entrance into this business can be seen in a percentage stacked area chart, see below.


Before JP Morgan’s arrival, HSBC and Scotia had over 90% of the market but this chart shows clearly that JP Morgan quickly cut HSBC’s market share from 50% to 35% and also into Scotia’s as well. During 2013 HSBC fought back and regained market share, initially from JP Morgan but then in 2015 eating into Scotia’s business.

The storage market dynamics are a bit difference in silver, with total silver stocks being somewhat consistent around 100 to 120 million ounces during the bull market and in contrast to gold, showing a ramp up to 180 million ounces as silver has fallen.


The storage business is also more competitive, with Brink’s and Delaware having larger roles and market share being spread out. Again we see the impact of JP Morgan, although it took until mid 2012 before they gained business. CNT also entered the market in late 2012.


From a market share point of view, it would appear that JP Morgan and CNT together have mostly taken business away from HSBC and Scotia and been able to maintain it.

While both the gold and silver warehousing market seems quite dynamic and competitive, it is interesting that the players don’t compete on price, with all of them charging according to CME $15 per 100oz gold contract per month and $8.50 per 1000oz silver bar per month (excepting CNT, who charges $6.75). At current metal prices that $15 fee equates to 0.17% per annum and for silver the rates are around 0.75%.

In addition, those fees also have not changed at least since June 2014, which is as far back as the Wayback Machine recorded the fee file. No one charges a Delivery In fee (which makes sense, you don’t want to dissuade people from putting metal in), but Delivery Out fees do vary, indicating some competition for those clients who do use Comex to source physical.

The lack of price competition is unusual in what is not an insignificant market. The table below shows the total estimated storage fees earned from 2011 to today.


Given that vaulting has large fixed costs, every additional ounces stored generally represents clear profit – the marginal cost of additional ounces stored is close to zero. With that set up one would expect more jockeying on storage fees.

The big loser in the warehouse wars has been Scotia, who had 32% of the $30 million per year storage revenue on offer during 2011, falling to 14% in 2015 ($4 million worth). The winners were CNT which moved from zero to 8% and JP Morgan who currently sit at 24%, equivalent to $7 million.


    Is this move by JP Morgan related to the accumulation of physical gold by Goldman Sachs and HSBC? Avery Goodman argues that changes in shorting rules for banks are pushing banks to accumulate physical gold.

    • Bron Suchecki

      We cannot know how much of the metal within a vault is owned by the vault operator (although we can be sure Brinks doesn’t own any of its metal). I think JPM’s move into vaulting was more about getting a share of the $30m of storage revenue on offer but also avoiding having to pay others for storing any metal they may have would have also been a factor. Note though that they can hold physical stock but be neutral position or they could be long or short, we just can’t tell from the CME reports.


        Thanks Bron – 30 million sounds like very little to me for a global investment bank to become interested. My hunch is that a more strategic move into this market makes sense for them, but I can’t tell what it might be yet.

        • Bron Suchecki

          Yes $30m is small for the whole bank but not so small for the bullion banking arm. The money in bullion banking is made in financing customers but being able to offer a full range of services helps to get and retain the customer, hence why the banks get involved in the physical aspects of the business even if that isn’t massively profitable in itself.


            Yes – something like a Full Stack bullion supplier which then helps them to sell higher value services. Thanks!

  • Ronan Manly

    In October 2012, the CFTC approved an increase in JPM vault space for the 4 precious metals – see page 4
    This would imply that the space in the JPM vault is designated into different areas, with extra space able to become approved as part of the Exchange (regular) facility. Or in other words, the entire JPM vault at 1 CMP was not initially approved by CFTC, just part of it.

    Also October 2012 seems to be when JPM business had got traction.

    • Bron Suchecki

      The vault started in 2011, maybe they only expanded once sure they were getting business. I would be surprised if the vault was already as big as it was and they could just not get approved part of it, that would defeat the whole purpose of eligible reporting as JPM could just move stuff into the non approved side of the vault. Would need evidence that there was no actual building work involved in the “expansion”.

  • Sir Vadgalot

    1. FACT – JP Morgan’s inventory has risen because they fraudulently cornered the market in Silver and thereby caused the price to collapse

    2. FACT – COMEX knows that these figures are all “painted” and don’t represent real physical metal, just Paper Promises and that’s why they put a disclaimer on every report because they KNOW its all a pack of lies

    3. FACT – all of the COMEX warehouses are empty of Deliverable metal, and all that is left are cobwebs. Gold isn’t moving from West to East because there isn’t any

    4. FACT – storage fees are so low because all the metal deposited in the fraudulent ponzi fractional bullion banking racket is infinitely rehypothecated, to the point where even paper claims on Unallocated Accounts are also used as collateral to leverage the infinite number of naked short contracts printed by the Banksters. Ponzi.

    5. This is all FACT – Andrew Maguire said so, and unlike all these Douche Bank shills and manipulation deniers, he’s an EXPERT

    Price Emancipation is on schedule to launch Silver to $50,000 / oz later this week (or maybe somewhat after that) so Keep Stacking’

    ©King World News 2015

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