The Paper Gold Price Attack Cycle Is Almost Over

As students of the gold market know, the paper gold markets in New York and London function as price manipulation mechanisms used by the western Central Banks in their effort to control the price of gold. As the physical demand from the eastern hemisphere pushes the price higher, the operators of the LBMA and Comex print large quantities of paper gold (gold futures, forwards) in order to satisfy the demand of hedge funds, which use futures to chase price momentum (up and down) in gold and silver.

Gold had been trading in a sideways pattern since mid-September between $1320 and $1260:

The graph above is derived from the Comex “continuous contract” end of day price. The continuous contract is not an actual contract. It is rather a price measure that “splices together” the front-month contracts over time for charting purposes.

As you can see, gold has formed a nice uptrend from late December 2016 that seems to have “stalled” since mid-September.  I watch the Comex gold futures open interest level and the COT “structure,” where COT structure is the big bank net short position vs the hedge fund net long position, in order to form an opinion on where I think the price of gold is headed. When the open interest in gold futures is at an extreme high level, combined with a bank net short position that is also extremely high, it almost always implies a price-takedown is coming.

Since mid-September, however, the gold futures open interest has stubbornly persisted above 500,000 contracts until the last week. Similarly, the big bank net short and the hedge fund net long positions have persisted at extremes over this time period. This is because, contrary to the “fake news” anti-gold propaganda spewing from U.S. financial media (Bloomberg and reuters specifically), physical “consumption” in the eastern hemisphere (India, China, Russia, Turkey, etc) has been unexpectedly strong.   Evidence of this is in direct data that comes from these countries and from the unusually high level of Privately Negotiated and Exchange For Physical transactions occurring on the Comex and the LBMA. These are “off exchange” contract settlement transactions that are intentionally opaque in nature.

Historically, extremes in these metrics tend to correct in much less time than the current period.   We have maintained a hedge on our mining stock portfolio for about 80% of the time between mid-September and now. We pulled it off about two weeks ago on a Friday thinking that maybe the ability of the banks to slam the market had diminished this time because of the strong physical demand from the east. Literally about 30 minutes after we took off the hedge the price of gold was slammed (I’m not kidding).

My thinking has been that, if we abide strictly by the COT and open interest, the Comex o/i needs to decline to the low 400k area before the next move higher takes place. When I “eyeballed” the gold chart in early September in the context of historical price-takedown operations, I figured it would take a move down to the $1230-1240 area to wash out enough open interest to rebalance the net short/net long set-up. But the open interest has persisted above 500k and the attacks on the gold price during the paper trading Comex hours have been short-lived in duration and shallow relative to historical intra-day attacks. The banks couldn’t  seem to get gold below $1260-$1270 until this week.

My best guess is that the unusually high demand for physical gold from the eastern hemisphere has prevented the banks from taking the price down enough to trigger one last hedge fund open interest wash-out. The 34,896 contract plunge in gold futures open interest last Tuesday (November 28) was the third largest one-day decline in o/i since the beginning of 2011 and it is a move in the right direction in order to break the “log-jam” in open interest on the Comex.

That said, the eastern hemisphere will go into temporary hibernation in mid to late December thru early January. I suspect that one last “shock and awe” price attack orchestrated in the paper market will be attempted in order to get the open interest down into the low 400k area. I thus expect the bull trend in gold/silver will resume in mid-January. We put the hedge back on this week, though we’ve been trying to trade in and out of it on price swings. In all likelihood, unless I see something that suggests otherwise, we’ll likely go through the Christmas/New Year’s period with a hedge.

One last thought, it’s going to be interesting to watch the Bitcoin bulls squirm and panic when the CME banks wrap their tentacles around Bitcoin futures.  Contrary to the untested notion that the supply of Bitcoin is capped, the supply of paper Bitcoin (futures contracts) is theoretically infinite…

The commentary above is from IRD’s Mining Stock Journal, which focuses on undiscovered gold and silver junior exploration stock ideas as well as presents relative value trading ideas in mid-cap mining stocks.  You learn more about this newsletter hereMining Stock Journal Information.

I wanted to thank you again for explaining to me how you put a hedge on it has saved me a great deal of money  – subscriber feedback received this morning

16 thoughts on “The Paper Gold Price Attack Cycle Is Almost Over

  1. I can remain precious metal solvent decades longer than these rat bastards can hold their insane breaths.
    Providing I live another 35 years. That’d be rich and so would I

  2. The biggest Silver commercials short covering on the latest cot report (as of november 26) : 26721 contracts.

    Max Keiser on gold and bitcoin (you can’t miss its take on Jim Rickards 🙂 )

    part 1 : http://www.kitco.com/news/video/show/Kitco-News/1789/2017-12-07/Bitcoin-Will-Outperform-Everything-Including-Warren-Buffett-Says-Max-Keiser–Part-1
    part 2 : http://www.kitco.com/news/video/show/Kitco-News/1789/2017-12-07/Bitcoin-Will-Outperform-Everything-Including-Warren-Buffett-Says-Max-Keiser–Part-1

    1. Hi Arthur,

      I am sorry to say that I dislike Max Keiser even more then mr Rickards. Mr Rickards at least has a coherent long term message and sticks to it. Mr. Keiser is all over the place. Ever heard of his (very failed) buy silver kill JP Morgan campain since PAPER! silver bubble popped? Now he is chasing this new bubble called crypto.

      Really, to me mr Keiser is the Jim Cramer of the alternative media.

      Regards,
      Hugo

  3. If I read the latest COT reports correctly, the bullion banks went net long roughly 4 million ounces of au and 130 million ounces of ag, by last Tuesday (closing). This amounts to roughly 143 metric tons (paper) gold and some 4000 metric tons (paper) silver – the latter is >> 10% of global yearly mine output – seems like *they* do have some affection for the “universally most hated” assets (real money) after all. As the paper price is again getting close to price of production there is IMHO limited downside here in the mid-term; short-term we may get lower for short periods as the (final ?) wash-out of weak hands is in progress…

  4. Bitcoin is the equivalent of a bunch of erect penises watching a hot but sexually inaccessible pole dancer and presuming that their temporarily and seemingly interminable erections will increase forever or until a happy ending. The odds are better at a good stripper bar or massage parlor, preferably served by Asian women who usually have some understanding of boundaries.

  5. Bitcoin is the financial equivalent of masturbating over a cartoon character. It wouldn’t be QUITE so unreal to masturbate over a REAL woman OR even a fictional one like Mary Anne in Gillagin’s Island who at least was played BY a real woman! But Bitcoin is like masturbating over Wilma Flintstone with the added madness of thinking she will come to life if you just HODL.

  6. I was on coinbase and decided to move my .025 Bitcoin into a wallet. Transaction time required…drum role please..48 hours. I’ve bought PMs with Bitcoin and to be honest I thought it was a very complex transaction that took 30 minutes to confirm. I’m just thinking…is this really the future? By the way coinbase used to be much faster. I can only assume their systems are under denial of service attacks and or there are many as in thousands of new users joining Coinbase to catch the run up in the cryptos. I also wanted to point out the stock “gold Money” XAU. I have an account with them. Goldmoney is a gold based blockchain service with physical in the vault. It’s moved up substantially (couple hundred %) over the last 6 months. Not sure if it’s because of the service or because its block chain related. I continue to use their service and plan on expanding my usage. I don’t own the stock but plan on buying it on the next pullback. FYI..I am a terrible stock picker with a history of bad decisions. Therefore, do your own DD. My DD is cursory and akin to betting in Vegas. I bet like an old lady and go all in at the worst times.

    1. It’s because of the blockchain technology; it guarantees that with higher demand…the more the utility of the so-called “hard asset” starts to degrade. Really…what other market destroys its inherent utility the more people adopt it? Imagine if gold started rusting when exposed to open air just because more people had it in their possession….or cars became less gas-efficient because they become more common place. The answer is none that has any honest integrity. The only comparable system that comes closet to simulating the collapse of inherent utility with rising demand is…a multi-level marketing scheme.

      When we observe the eventual saturation of subscribers in a multi-level marketing scheme (which is just a cleverly disguised pyramid scheme), we get the same effects as what we are now seeing in the BitCoin market. The price goes up fast, and the early promoters get out rich…but it becomes extremely difficult for the latecomers to actually sell the main “product” for its intended purpose (either because it’s shoddy or overpriced)…so they are forced to overcome this by selling their “business kits” to the next greater fool. In BitCoin’s case, the product is a intermediary banking service (a very lousy one at that), and the business kits are their digital “wallets”.

      And just like every multi-level marketing gimmick out there, the promoters don’t care when you point out how their system creates more NEEDLESS COMPETITION between internal sellers by constantly recruiting said sellers…thereby fostering more external competition “Hey…I can come up with my own scheme too!”. They always think their “system” is proven…until it eventually hits that wall and suddenly everyone is shocked and horrified by something “nobody saw coming”.

      Scotty…beam me up. There’s no intelligent life here!

  7. Two things popped up about buying gold or silver with Bitcoin and Gold Money. One gold money user on TFMR noted that his transaction on Gold Money resulted in a loss more costly that just the usual transaction fee and took longer than usual.
    Another comment on ZH and other sites is that 1,000 Bit Coin owners comprise 40% of the market.
    Their actions rare assumed to be cornering the market, with rapid fire bid rigging and spoofing prices to their advantage. This clogs the system, making normal smaller transactions far slower and more cumbersome. This slowness could cause some substantial losses while someone is waiting for a deal to close.
    Sound familiar?
    The TBTF banks have been doing this for decades, even prior to computer systems that can front run markets by no more than a second or less; as an example of skewing the markets with massive blasts of paper gold. This is a cornering of a small physical market with enormous electronic manipulation.
    If a few crypto players can blast the market with sales and buys that are nothing but manipulative toolings of the market, then the cryptos are no longer the province of free range owners who can operate safely with their chosen markets.
    The one thing that bothers me if that significant ownership is small then exits are even smaller and easily controlled.
    This ability to corner a $350 billion BTC market with a few collusional players is no different than 6-8 dealers manipulating a silver market with a 10 minute slam using 800,000,000 ounces of paper AG.
    A 50 cent smackdown in silver is 3% on $17
    3% on $15,000 is $450, a slight tremor in it’s value.
    I won’t say that silver prices are stable but the $1000-2500 price fluctuations in Bit Coin
    are 7.5 on the Richter scale. That doesn’t make me like that market. If it becomes even more erratic a lot of people will get hurt badly
    Remember Gresham’s Law. Bad money pushed out good money even when the money is not money in the conventional sense.

    1. IMHO
      There is 3 differences between bitcoin and AG :

      – There was no 1000 but 1 trader who controlled 40% of the market (maybe again i don’t know) ( http://www.zerohedge.com/article/cftc-commissioner-bart-chilton-reveals-one-trader-controls-40-silver-market-silver-holdings- )

      – On AG, this trader was on the short side.

      – There is no leverage on bitcoin.

      This parabolic bitcoin chart is simply what’s happen when folk flees confidence in central banks (fiat currencies) in a free market.

      Wait for december 18th to see the beginning of the transition between free and controlled market.

      I think these 1000 bitcoin owners will learn 2 things , Short side, and Leverage. Good luck to them.
      This bubble needs to crash like any other bubble before rising again because the blockchain is a big thing : https://www.youtube.com/watch?v=G3psxs3gyf8

Leave a Reply

Your email address will not be published. Required fields are marked *

Time limit is exhausted. Please reload CAPTCHA.