An aggressive worth assault by the banks who function the Comex is inevitable. Dave Kranzler explains why…
by Dave Kranzler of Funding Analysis Dynamics
In need of a raid orchestrated by the central planners to lock tighter the cap on gold (which stays an actual chance given the historic report), the yellow steel shouldn’t encounter a lot worth resistance till above $1,500/oz. – Adam Taggart, Peak Prosperity
I agree with the assertion above from Adam Taggart however an aggressive worth assault by the banks who function the Comex is inevitable. Actually, based mostly on the large soar in gold contract open curiosity and the spike up in EFP/PNT transactions – Privately Negotiated Transactions /Trade for Physicals – it’s seemingly the banks have been setting the entice for an additional huge open curiosity liquidation worth management operation.
Let me clarify. The banks are unconstrained by the quantity of paper contracts they print and feed into the market to produce the demand from the hedge funds, who’re the first consumers. By unconstrained, I imply that the quantity of gold represented by paper spinoff open curiosity is way larger than the quantity of precise bodily gold held in Comex vaults. Gold and silver are the ONLY commodity contract merchandise for which this disparity between open curiosity and underlying provide of the bodily commodity is allowed to happen.
As an apart, if the Comex had been a real worth discovery market, the quantity of gold/silver represented by the paper contracts can be tied carefully to the quantity of gold held in Comex vaults. When hedge funds rush in to purchase futures, the market makers would then be required to attend till an entity holding contracts was keen to promote. That is how a bona fide worth discovery market features utilizing worth to clear the market’s provide and demand.
As an alternative, with CME gold and silver contracts, the banks print up new paper contracts to satiate shopping for demand.
Final week when the value of gold started to spike greater in response the FOMC coverage assertion launched on Wednesday, the value of gold started soar. Between Wednesday and Friday, the open curiosity in gold contracts spiked up by over 50,000 contracts – almost 10%. This quantity of paper represents over 5 million ounces of gold. As of Friday, the Comex warehouse report reveals simply 322,910 ounces of gold accessible for supply (“registered”) and seven.6 million whole ounces of gold. However the whole open curiosity is 572,000 contracts, or 57.2 million ounces of gold, almost 8x the quantity of whole gold held in Comex vaults.
However wait, there’s extra. During times of aggressive worth management, the exercise of PNT/EFP’s additionally soars. These transactions keep away from settlement in 100 ouncesComex bars per primary contract phrases. As an alternative, it’s manner for the banks to “ship” underneath the phrases of the Comex contract with out producing and delivering the precise bodily bar, recording the serial quantity on the bar underneath the receiving get together’s title and transferring the bar into an allotted account. It’s an extension of the fractional bullion system that’s used to control the gold worth. It permits the banks to ship phantom gold in lieu of delivering actual bars.
On Tuesday the PNT/EFP quantity was 8k and 5.9k respectively. On Wednesday the amount was 11.5k and 9.1k. On Thursday, when gold was hovering over $1400, the amount in PNT/EFP’s was 30ok and 22ok respectively. On Friday the amount was 21ok and 11.three.
On common, the each day quantity of those two transactions is often underneath 10ok – besides when the banks are aggressively implementing worth administration operations.
The banks use these transactions, together with feeding tens of 1000’s of newly printed gold contracts to the hedge funds. This drives up the open curiosity. On Friday, Might 31st, the open curiosity in Comex gold was 465ok contracts. The present open curiosity of 572ok is approaching the extent at which the value of gold was attacked on the Comex in every of the final three years.
The method is ready up by letting the hedge fund algos chase the value greater and accumulate an excessively massive web lengthy place in gold contracts, On the similar time, the banks feed contracts into the shopping for frenzy and accumulate an offsetting web brief place. Because the operation cycles via, the banks power the value decrease by attacking the stop-loss ranges set by the hedge funds as they chase the value greater. The banks use the concomitant hedge fund promoting to cowl their shorts, thereby reaping monumental earnings.
In September 2016, gold ran greater through the summer season and the open curiosity had reached near 600ok. The worth gold was dropped from $1200 to $1070. In September 2017, the gold contract o/i reached over 580ok and gold subsequently was taken down from the excessive $1300’s to $1125. Then, in January 2018, the open curiosity as soon as once more was over 580ok contract and the gold worth was taken down from $1350 to $1200.
In all three worth management cycles, the open curiosity fell under 500ok because the banks unloaded lengthy positions and the banks coated their shorts.
It is a long-winded manner of explaining why I imagine that someday within the subsequent 10 buying and selling days the market ought to count on an aggressive try by the banks to assault the gold worth on the Comex – and to a point on the LBMA. We’ll know I’m proper if we get a collection of “fishing line” worth drops someday between now and the July 4th vacation. Fridays and pre-holiday buying and selling days, when quantity is mild, is a favourite time for the banks to start taking down the gold worth.
The excellent news is, in case you observe the sequence I described above from 2016 to now, the value of gold is establishing a collection of upper highs and better lows. This tells us that the western Central Financial institution/bullion financial institution effort to manage the value of gold is restricted in its success. That is seemingly due to immense demand from jap hemisphere consumers (Central Banks, buyers, residents) who require precise bodily supply.
Moreover, if I’m mistaken about an imminent worth assault to take the value of gold decrease, it signifies that the Central Banks/bullion banks have misplaced management of the market – a minimum of in the meanwhile – and the market is experiencing Invoice “Midas” Murphy’s “industrial sign failure.” If this seems to be the case, and it’s in the end an inevitability, strap in for some enjoyable in case you personal bodily gold, silver and mining shares.