Sifting through Twitter, I came across a curious assertion posited as a reply to a post on “unemployment” on Steph Pomboy’s twitter feed (@spomboy). The tweeter asked, “have you noticed that gold is being dumped?” But was gold “dumped?” Perhaps the tweeter should have qualified the question with the adjective, “paper,” in front of the word “gold.”
I replied rhetorically with, “is actual physical gold being dumped or is it Comex is it paper gold?” Let’s have a look. (click image to enlarge)
The Comex is a futures contract trading venue. While the Comex vault operators issue daily vault reports which allege the presence of 100 oz gold bars in custody, we have no idea if all of the bars are sitting physically in the vaults or whether or not there are any sort of encumbrances attached to any of them. Very few holders of gold contracts ever take delivery and very little actual physical gold moves in or out of the Comex vaults on a weekly/monthly/quarterly basis. In short, the Comex is a paper gold trading exchange.
On Friday, after the primary physical bar trading markets – India and China – were closed for the weekend, large quantities of paper gold futures were suddenly being dumped into the CME’s Globex computer trading system, about 5 minutes before the Comex gold pit opened for the day (8:20 a.m. EST). You can see the action narrated in the chart above. It’s not uncommon for the price of gold to be smashed using paper gold on the Friday after an FOMC meeting, especially in the summer months when trading operations are likely only at half-staff and the rest of the world is gone for the weekend.
Over a 60 minute period from 8 a.m. – 9 a.m. EST, approximately 90,300 contracts were sold, largely indiscriminately hitting every bid in sight. This is the equivalent of 9.03 million ozs of gold. There’s only one problem with this: as of Friday’s warehouse report, Comex vaults were reporting total gold stock of 9.01 million ozs – only 507,453 of which were listed as “available to be delivered.” In other words, in just one hour, the total amount of gold allegedly held in Comex vaults was “dumped” in the form a paper derivatives. Worse, the amount “dumped” was 17.7x the number of gold ozs currently available to deliver.
For the entire day, Globex + floor volume, 495,364 contracts were “dumped.” This is 49,536,640 ozs of Comex paper gold. Again, I ask the tweeter who posited that comment on twitter, was gold really “dumped” on Friday?
For those who monitor the daily gold flow into India and China, I will bet any amount of money that both of those markets will be aggressively buying more than their usual daily amount of physical gold in order to take advantage of the lower price. Funny that Trump would enable the Chinese to buy cheap physical gold when he’s engaged in a rapidly escalating trade war with China…