Gold Is Going Higher – But Brace Yourself For Volatility

Short of a raid orchestrated by the central planners to fasten tighter the cap on gold (which remains a real possibility given the historical record), the yellow metal shouldn’t encounter much price resistance until above $1,500/oz.  – Adam Taggart, Peak Prosperity

I agree with the statement above from Adam Taggart but an aggressive price attack by the banks who operate the Comex is inevitable.  In fact, based on the big jump in gold contract open interest and the spike up in EFP/PNT transactions – Privately Negotiated Transactions /Exchange for Physicals – it’s likely the banks have been setting the trap for another massive open interest liquidation price control operation.

Let me explain.  The banks are unconstrained by the amount of paper contracts they print and feed into the market to supply the demand from the hedge funds, who are the primary buyers. By unconstrained, I mean that the amount of gold represented by paper derivative open interest is far greater than the amount of actual physical gold held in Comex vaults.  Gold and silver are the ONLY commodity contract products for which this disparity between open interest and underlying supply of the physical commodity is allowed to occur.

As an aside, if the Comex were a true price discovery market, the amount of gold/silver represented by the paper contracts would be tied closely to the amount of gold held in Comex vaults.  When hedge funds rush in to buy futures, the market makers would then be required to wait until an entity holding contracts was willing to sell. This is how a bona fide price discovery market functions using price to clear the market’s supply and demand.

Instead, with CME gold and silver contracts, the banks print up new paper contracts to satiate buying demand.

Last week when the price of gold began to spike higher in response the FOMC policy statement released on Wednesday, the price of gold began soar.  Between Wednesday and Friday, the open interest in gold contracts spiked up by over 50,000 contracts – nearly 10%. This amount of paper represents over 5 million ozs of gold. As of Friday, the Comex warehouse report shows just 322,910 ozs of gold available for delivery (“registered”) and 7.6 million total ozs of gold. But the total open interest is 572,000 contracts, or 57.2 million ozs of gold, nearly 8x the amount of total gold held in Comex vaults.

But wait, there’s more.  During periods of aggressive price control, the activity of PNT/EFP’s also soars.  These transactions avoid settlement in 100 oz Comex bars per basic contract terms. Instead, it’s way for the banks to “deliver” under the terms of the Comex contract without producing and delivering the actual physical bar, recording the serial number on the bar under the receiving party’s name and moving the bar into an allocated account. It’s an extension of the fractional bullion system that is used to manipulate the gold price. It allows the banks to deliver phantom gold in lieu of delivering real bars.

On Tuesday the PNT/EFP volume was 8k and 5.9k respectively. On Wednesday the volume was 11.5k and 9.1k. On Thursday, when gold was soaring over $1400, the volume in PNT/EFP’s was  30k and 22k respectively.  On Friday the volume was 21k and 11.3.

On average, the daily volume of these two transactions is typically under 10k – except when the banks are aggressively implementing price management operations.

The banks use these transactions, along with feeding tens of thousands of newly printed gold contracts to the hedge funds. This drives up the open interest.  On Friday, May 31st, the open interest in Comex gold was 465k contracts.  The current open interest of 572k is approaching the level at which the price of gold was attacked on the Comex in each of the last three years.

The process is set up by letting the hedge fund algos chase the price higher and accumulate an excessively large net long position in gold contracts,  At the same time, the banks feed contracts into the buying frenzy and accumulate an offsetting net short position.  As the operation cycles through, the banks force the price lower by attacking the stop-loss levels set by the hedge funds as they chase the price higher.  The banks use the concomitant hedge fund selling to cover their shorts, thereby reaping enormous profits.

In September 2016, gold ran higher during the summer and the open interest had reached close to 600k. The price gold was dropped from $1200 to $1070.  In September 2017, the gold contract o/i reached over 580k and gold subsequently was taken down from the high $1300’s to $1125.  Then, in January 2018, the open interest once again was over 580k contract and the gold price was taken down from $1350 to $1200.

In all three price control cycles, the open interest fell below 500k as the banks unloaded long positions and the banks covered their shorts.

This is a long-winded way of explaining why I believe that sometime in the next 10 trading days  the market should expect an aggressive attempt by the banks to attack the gold price on the Comex – and to some degree on the LBMA.  We’ll know I’m right if we get a series of “fishing line” price drops sometime between now and the July 4th holiday. Fridays and pre-holiday trading days, when volume is light, is a favorite time for the banks to begin taking down the gold price.

The good news is, if you follow the sequence I described above from 2016 to now, the price of gold is establishing a series of higher highs and higher lows.  This tells us that the western Central Bank/bullion bank effort to control the price of gold is limited in its success.  This is likely because of immense demand from eastern hemisphere buyers (Central Banks, investors, citizens) who require actual physical delivery.

Furthermore, if I’m wrong about an imminent price attack to take the price of gold lower, it means that the Central Banks/bullion banks have lost control of the market – at least for the time being – and the market is experiencing Bill “Midas” Murphy’s “commercial signal failure.”  If this turns out to be the case, and it is ultimately an inevitability, strap in for some fun if you own physical gold, silver and mining stocks.

12 thoughts on “Gold Is Going Higher – But Brace Yourself For Volatility

  1. Thanks for this, Dave. Though you have gone over the mechanics previously, spelling it out is very useful for those of us who are not seasoned market players.

    The next few months (and years) should, of course, be very interesting indeed, and especially as it relates to gold.

    1. Tinky,

      I agree.
      “This is a long-winded way of explaining why I believe that sometime in the next 10 trading days the market should expect an aggressive attempt…..”

      Personally I like your long-winded commentary. It’s how I learn/assimilate more.

  2. A classic oxymoron. Gold is not rising because of tension in the ME, tension in the ME is because gold is rising.
    I have long said you can only manipulate something as long as you have it. When you run out, you can no longer manipulate the price. A war is follows to wipe out what you have done and if possible set a new standard. More so when the manipulation is gold and paper money is your tool.
    David J

  3. Dear Dave. Thank you for this excellent article. This is a horrendeous show of global criminality and it is a telling sign of our times that not ONE market police man, or ANY legal enforcement agency in ANY country acts to stop this market abuse.

        1. The market manipulation goes on unabated. The gold price has been smashed from $1437 to $1402 and it appears that the cartel wants to push it below $1400. The Morgan Stanley case apparently does not make one iota of a difference. It may be just a deception operation to give the impression that regulators take the issue seriously. It is impressive to see the market reaction. Investors and traders keep on buying relentlessly. Trust in gold appears to be at a new high.

  4. As a subscriber to your Mining Stock Journal and Short Sellers Journal, I have always been happy with your detailed information and explanations of the criminal manipulations at the Crimex.
    Why are the hedge funds so stupid? Why do they continually take it in the shorts? Are most of them complicit in this fraud?

    1. Ya I did an in-depth analysis of the inverted eurodollar futures curve in my Short Seller’s Journal a few weeks ago

  5. There is maybe another reason why gold can go much higher , surprise war with Iran.
    I have shares in 2 gold mining companies and Big Banks are loaded with their shares.
    Anything is possible for short term however , so far so good.

  6. Unlimited digital US dollar printing has gone on unabated by the U.S. and Central Banking Cabal. Why has this not caused general hyperinflation in goods and services?

    Because the Cabal has used unlimited dollar printing to suppress the prices of all commodities in the futures markets. Including the precious metals of course.

    On the other end, the Cabal has used their money printing to purposely inflate the U.S. stock market and real estate and U.S. Bonds to keep interest rates low in an attempt to keep the economy going without faltering. Their choice of assets to inflate.

    What an incredible diabolical plan they have implemented for decades.

    What can destroy this entire current state of financial and economic rigging?
    Ultimately, a world system that today has $250 plus trillion of DEBT.

    There could be several triggers that provides the spark to an uncontrollable financial fire that fries/freezes up the entire system.

    The Cabal is like a boy that is plugging his fingers into the water holes of a dike. There will be more water holes than fingers while on the other side the water is building and severely weakening the (financial) wall. A financial tsunami is approaching on the other side. It’s a death match to the very bitter end.

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