Ballooning open interest, heavy fix selling, aggressive post-settlement selling, flash crashes – this all seems a lot of bother. Perhaps the Other Side is afraid of something. – John Brimelow from his Gold Jottings report
Wednesday evening at 7:06 EST, at one of the least liquid trading periods of the 23 hour trading day for Comex paper gold, a “motivated” seller unloaded 10,777 August gold contracts into the CME’s Globex trading system, knocking the price of gold down $9 in 25 minutes. There were no obvious news or events reported that would have triggered any investor to dump over 1 million ozs of gold with complete disregard to price execution.
Rather, the selling was the act of an entity looking to push the price of gold a lot lower in “shock and awe” fashion. The 10.7k contracts sold were just the August contracts. There was also related selling in several other contract months. To be sure, the total number of contracts unloaded included hedge fund selling from stop-losses triggered in the black boxes of momentum-chasing hedge funds.
In addition to the appearance of frequent, strategically-timed “fat finger” flash crashes, the open interest in paper gold on the Comex has soared by 23,000 contracts since last Friday. This added 2.3 million paper gold ounces to the Comex open interest, which represents nearly 27% of the total amount of alleged physical gold ounces sitting Comex vaults. In fact, the total paper gold open interest on the Comex is 455,605 contracts, or 45.5 million ounces of gold. This is 530% more paper gold than the total amount of gold reported to be sitting in Comex vaults.
The dramatic rise in open interest accompanied gold’s move in price above the 50 dma. It’s typical for the bullion banks on the Comex to start flooding the market with additional paper contracts in order to suppress strong rallies in the price of gold. Imagine what would happen to the price of gold if the regulatory authorities forbid the open interest in Comex gold contracts to never exceed 120% of the total amount of gold in the Comex vaults. This is unwritten “120% rule” is de rigeur with every other commodity contract except, of course, silver.
The “flash crash” and “open interest inflation” are two of the obvious signals that the western Central Banks/bullion banks are worried about the rising price of gold. The recent degree of blatant manipulation reflects outright fear. I suspect the fear is derived from two sources. First is a growing shortage of physical gold that is available to deliver into the eastern hemisphere’s voracious import appetite. Exports from Swiss refineries have been soaring. India’s appetite for gold has not been even slightly derailed by the 3% additional sales tax imposed on gold.
Speaking of India, the World Council has put forth a Herculean effort to down-play to amount of gold India has been and will be buying. After India’s 351 tonnes imported in Q1, the WGC tried to shove a 90 tonne per quarter forecast down our throats for the rest of the year. India’s official tally for Q2 is 167.4 tonnes. Swing and a miss for the WGC. Now the WGC is forecasting at total of 650-750 tonnes for all of 2017.
The WGC forecast is idiotic given that India officially imported 518.6 tonnes in 1H and 2H is traditionally the best seasonal buying period of the year AND a copious monsoon season means that farmers will be flush with cash – or rupees, rather – which will be quickly converted into gold. Two more swings and misses for Q3 and Q4 and the WGC is out of excuses for why India likely will have imported around 1,000 tonnes, not including smuggled gold, in 2017. This aggressive misrepresentation of India’s gold demand reeks of propaganda. But for what purpose?
Back to the second reason for the banks to fear a rising price of gold: the inevitable collapse of the largest financial bubble in history inflated by Central Bank money printing and credit creation. The trading action in the gold and silver markets resembles the trading activity in 2008 leading up to the collapse of Lehman and the de facto collapse of Goldman Sachs.
One significant difference is the relative effort exerted to keep a lid on the price of silver. In early 2008, with the price of silver trading between $17 and $19, the open interest in Comex silver peaked at 189k contracts (Feb 29th COT report). Currently the open interest is 206k contracts and it’s been over 240k. In late 2008, the Comex was reporting over 80 million ozs of “registered” silver in its vaults. “Registered” means “available for delivery.” There were thus roughly 3 ozs of paper gold for every reported ounce of physical gold available for delivery. Currently the Comex is reporting 38.5 million ozs of registered silver. That’s 5.3 ozs of paper silver for every ounce of registered silver.
As you can see, the relative effort to suppress the price of gold and silver is more intense now than in 2008. Given what occurred in 2008, I have to believe that fear emanating from the western banks currently is derived from events unfolding “behind the curtain” that are worse than what hit the system in 2008.