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Total Gold Open Interest Falls Below 400,000

I don't know. Maybe you think I'm crazy for harping on this so much. But, I'm here to tell ya, this is a big deal. I can't remember the last time the total gold open interest on the Comex was under 400,000! And now here, in 2012 with price at $1650 and interest/attention in gold at an alltime high, total gold OI as of last Thursday evening is 399,607. This is astounding and it has significant implications.

Once again, perhaps I need to give you some perspective. In November of 2009, with price near $1200, total OI was 510,744. In September of 2010, with price near $1400, total OI was 585,564. In July of last year, before The Cartel got caught in an S&P downgrade-induced short squeeze, price was near $1600 and total OI was 542,342. Lastly, just six short weeks ago, the gold price was near $1800 and total OI was 479,044. Even at late February levels, gold OI was down 20% from the peak in 2010 but still 20% above where we were as of Thursday night. This is breathtaking, startling, amazing and...confusing.

How could this be? Is not fiat devaluation awareness higher than it was in 2010? Is not gold investment demand higher than it was in 2010? Is not physical demand greater than it was in 2010? If so, then how in heck can total gold open interest on the Comex be down 30-35% in 18 months?

Well, there are certainly myriad reasons for this. A big one is that initial and maintenance margins are significantly higher now than 2010. However, there's no way that higher margins can explain a 30% drop in market size. Lots of miners have eliminated forward hedging programs, too, but this can't account for all of the drop, either. And the MFG collapse has chased away a lot of participants whose compliance and legal departments no longer allow dealings with the Comex. Now...you put those three together and...maybe we're getting somewhere.

But what does this ultimately mean? It means, as I've stated here consistently since November, that the Comex is dying and losing its ability to "wag the dog". In order for the price of paper metal to have any influence on the price of physical, a balance must be struck that keeps the price of paper roughly in line with the demand for physical. As paper price drops, physical demand increases and paper price must then respond higher. If paper price were to continue to fall in the face of increasing physical demand, the resultant undervaluation would bring about a "run". And, for the C/C/C (CME/Comex/Cartel) with paper levered up to 100:1 basis the gold in the vaults, a "run" must be avoided at all costs.

Therefore, though TPTB would love to see gold at 1400, or at 1200, or at 1000, it's not going to happen. It can't and won't. Price must be kept in a sort of equilibrium where physical demand roughly equals supply. Hmmmm. In an environment where price is "managed" in order to maintain this equilibrium, do you think a long-term chart might look something like this:

paper_4-9pmgoldw.jpg

Anyway, I guess my point is this: Interest in "investing" through the Comex is at extraordinarily low levels. If The Cartel and the specs in tandem keep shorting and pushing it lower, price may drop to levels where paper price effectively separates from physical price and this cannot be allowed to happen. What this means to you is this: Prepare for a spring and summer rally in gold. The criminal C/C/C must make gold go up in order to continue the continuum or, stated differently, maintain the status quo. The only way that gold can be allowed lower would be if the C/C/C can somehow rig global physical demand lower at the same time. If you actually think they can do that (dissuade central banks, institutions and individuals from wanting physical gold reserves), then you should expect lower prices from here. If, on the other hand, you believe that physical demand will continue to increase through the balance of 2012 and for years to come, then you must be prepared for a price recovery that will last into the summer.

Below are some charts to chew on overnight and into Tuesday. Note that gold was actively held below $1650 all day today. (The BLSBS was so lousy on Friday that we undoubtedly added some new spec longs today. We also added so new Cartel shorts today with the $1650 cap. Therefore, look for total OI to be back over 400,000 when it's reported tomorrow.) In the big picture, however, gold is still looking like it's crafting a massive, 8-month reverse head-and-shoulder bottom, which would be extremely bullish. Also note that gold is still above the old downtrend line from the 8/2011 and 11/2011 highs and remember that prices, once they break downtrend lines, often "ride" them lower while consolidating before finally breaking higher once and for all.

paper_4-9pmgold5.jpgpaper_4-9pmgoldh.jpg

paper_4-9pmgoldd.jpg

Silver is stuck, for now, in an EE-inspired range that is roughly bound by $33 on the top and $31 on the bottom. Like gold, however, silver is slowly carving out a massive, reverse head-and-shoulder bottom in the "correction" since last September.

paper_4-9pmsilvh.jpgpaper_4-9pmsilvd.jpg

Finally, thanks to all who have taken up Andy on his offer and conscripted themselves into the Turdville Army. Beginning Tuesday, we will be sending two, full platoons into battle against the Evil Empire. Good luck and Godspeed, loyal Turdites. Go extract a pound of flesh and a few pounds of profit. Then, report back here in 3 weeks with your success stories so that we might further enlist and grow our force.

TF

179 Comments

SS121's picture

1?

Me?

Edit:  Holy Canola, my hands were shaking just trying to hurry up and post my 1st 1st...

And I don't know what open interest is but I read the post, glad you made it home safe and sound!

fast mover's picture

Who wants first?

Who wants first?

Bongo Jim's picture

Turd

I mean third...or maybe I don't.

Doc Scurlock's picture

Same song

Turd, it's the same song, but a good tune.  My work indicates the possibility of a spring low (possibly/probably in) and a summer rally that could last through the end of the year.  Your reasoning is sound, but I would caution the Turd faithful, a managed market does not go crazy on the upside unless it becomes unmanagable.  Do Not chase high prices higher.  BTFD now so you can enjoy the rising trend.  Keep stacking.

¤'s picture

Thanks

Appreciate the update.

Maybe low O/I also indicates a slightly frightened outlook by some buyers who no longer trust the market after some of those steep and not so steep price drops? I believe in the overall trend going upwards long term, but maybe short term there is some hesitancy and they have some people spooked.

We need some type of market jarring event to shake it up.

Bugzy's picture

Agreed

Good post Turd. Been thinking exactly the same thing.

SaratogaPrepper's picture

Open Interest

I'm a simple stacker and know nothing about trading, but do enjoy learning. That said, my take from what TF says and an article on WIKI about OI, is falling price (from 30 day chart) and falling OI = strengthening market? Meaning price should be going up?

kingboo's picture

seem to be the best i can do..........

Fred Hayek's picture

Mish's wife has ALS -- a raffle will donate $ to finding a cure

Mike "Mish" Shedlock, a very sharp and likeminded blogger recently announced that his wife Joanne has ALS, commonly known as Lou Gehrig's disease.  He's asking folks to take part in a 50-50 cash raffle half the proceeds of which will be donated to the Les Turner Foundation for ALS research.  The cost per raffle ticket is $200.  I know that's expensive for a lot of us.  But for those for whom it isn't I hope you'll consider this worthy charity and taking part as at least in some part a tribute to one of the good guys of the economics blogosphere.  Thanks!

http://globaleconomicanalysis.blogspot.com/2012/04/my-wife-joanne-has-als-lou-gehrigs.html

paulindoon's picture

More "stuff" to worry about

Link: http://debka.com/article/21907/

Big US-Arab Gulf air force exercise draws Iranian warning to stop at once
DEBKAfile Exclusive Report April 9, 2012, 11:04 PM (GMT+02:00)

Saudi Air Force warplanes

At least 200 American and Arab Gulf fighter-bombers thundered overhead Sunday, April 8 at the outset of the biggest air force exercise ever conducted in the Gulf region. They are simulating war with Iran and an operation for reopening the strategic Straits of Hormuz if it is closed by Tehran. debkafile’s military sources report that 100 of the warplanes took off from the USS Enterprise and USS Abraham Lincoln which are cruising with their strike groups opposite Iranian shores. The Saudi, UAE, Kuwaiti and Bahraini air forces contributed the other 100.

gearhead_24's picture

WTF

Turd Ferguson's picture

The PMs perked up this evening...

MODERATOR
pforth's picture

Feels like a bit of a battle...

This is usually one of the most quiet times of the day, but it feels like a bit of a battle right now.... the bar ranges huge and the price is jumping up and down 10-20 cents every few minutes.  Earlier today was interesting too, with the big spike up to nearly 33 as well as a smaller spike during the day.  New players in town?  Dueling Algos?

OrangeAlert's picture

For some reason I wanted to

For some reason I wanted to throw out a guess at what might happen with Gold.  Just for fun.  $1700 - $2100 sure seems plausible and likely this year.

Strongsidejedi's picture

comex spot does not equate to physical

To all those people talking about commodity derivatives on the CME and Comex:

Part A:  What's worth more:

1.  100 ounces of gold in hand

2.  1 futures contract for gold to be delivered in June 2012

3.  1 futures contract for gold to be delivered in December 2012

4.  1 option on the June 2012 gold contract

5.  1 option on the December 2012 gold contract

Part B:  What is the premium?

1.  What is the premium for 1 ounce of gold at the "Local Coin Shop"?

2.  What is the premium for 1 ounce of gold at the Wholesaler?

3.  What is the premium for 1 ounce of gold through CME futures contracts?

Compare and contrast the valuation.  Discuss the implication of holding paper derivatives and the risk of not receiving gold in return for money spent.

Bonus:  Discuss the federal IRS implications of moving gold over international borders as import/export.

¤'s picture

Earth HD| Time Lapse View from Space, Fly Over

Time lapse sequences of photographs taken with a special low-light 4K-camera
by the crew of expedition 28 & 29 onboard the International Space Station from
August to October, 2011.

Shooting locations in order of appearance:

1. Aurora Borealis Pass over the United States at Night
2. Aurora Borealis and eastern United States at Night
3. Aurora Australis from Madagascar to southwest of Australia
4. Aurora Australis south of Australia
5. Northwest coast of United States to Central South America at Night
6. Aurora Australis from the Southern to the Northern Pacific Ocean
7. Halfway around the World
8. Night Pass over Central Africa and the Middle East
9. Evening Pass over the Sahara Desert and the Middle East
10. Pass over Canada and Central United States at Night
11. Pass over Southern California to Hudson Bay
12. Islands in the Philippine Sea at Night
13. Pass over Eastern Asia to Philippine Sea and Guam
14. Views of the Mideast at Night
15. Night Pass over Mediterranean Sea
16. Aurora Borealis and the United States at Night
17. Aurora Australis over Indian Ocean
18. Eastern Europe to Southeastern Asia at Night

Image Courtesy of the Image Science & Analysis Laboratory,
NASA Johnson Space Center, The Gateway to Astronaut Photography of Earth
http://eol.jsc.nasa.gov

Strongsidejedi's picture

Probable explanation on PM prices in Asia

The NorKor satellite rocket launch which is pending has resulted in Japan, Taiwan, South Korea, and the Phillippines increasing military activity.

The rocket is said to have a south by southeast trajectory from the Korean peninsula and will have the possibility of flying over any of those nations.

These events are likely to be scaring the asian markets.  The result of threat in asia is for the commoner to run into silver and gold.

The algorithms attempting to sell paper silver are selling into panic buying in Asia for the PM's.

The end result is that the asians are not stupid and allow the  algo's to sell down the price, at which time the buying restarts a few minutes later.

It is my view that the PM's will ride up on a successful rocket launch by NorKor.

TomMack's picture

other commodities

i am curious if crude and corn have had similar contractions in their open interest  

kingboo's picture

'The only chart that matters"....

Turd, i agree 100% with your analysis.........i believe you are correct that the chart depicts a "managed" increase in the price of gold. But.......Houston, we have a problem.  So far the "managed" price is a linear increase.......that simply won't do in a debt based economy that absolutely, positively requires an exponential growth rate. Which brings us back to your point about supply and demand...........   If gold's price continues on a linear incline, gold demand will surge, simply because the monetary base is growing exponentially. Therefore the only way to "manage" the gold price would be to let it rise exponentially as well...........in other words, it can't be managed. The only thing they can manage is the flow of new money......        Which brings us back to   "Houston, THEY have a problem.....   

BUSHMAN's picture

OI TABLE

The relationship between the prevailing price trend and open interest can be summarized by the following table.

Price
Open Interest
Interpretation
Rising
Rising
Market is Strong

Rising

Falling

Market is Weakening

Falling
Rising
Market is Weak
Falling
Falling
Market is Strengthening

JimmyTheHand's picture

@gearhead_24

Yea I was thinking the same thing. Silver chart looks like it is possessed by an HFT algo on 'roids.

ed's picture

commetns

My view is that separation of phys and paper price is very much an 'endgame' scenario (i.e. years away). For separation to happen the Comex delivery mechanism needs to be broken, and seen as broken, by the market (i.e. the majority of participants). It is only when it is broken that there will be a separation. Right now, I can choose to 'buy' gold by taking delivery. 3,340 contracts (USD550m) are standing for delivery right now, so its not broken yet.

I believe it is currently a minority view that there is a meaningful risk of non-performance on the April Comex paper contract. Maybe there is risk, maybe not, but it is definately a minority view. If I perceive risk and buy phys at a (slightly) higher price, an arbitrageur  holding the majority view could sell me the phys, buy a futures contract, and take delivery.

Turd, I believe that you are spot on with your view that phys buyers put a (movable) floor on the price. This floor seems to be at about the trendline (1,600 now).

Personsonally I dont see a lot of consequences from the drop in OI if that is driven by low public participation, given the 'floor price' is set by physical buyers. Public, especially small public, are generally wrong are they not? Most large specs are trend following algos which I would suggest will on average make some fiat, but with very high volatility. 

recaptureamerica's picture

College repost to CL and anyone else interested...

Let the juniors and junior-ettes go to " Life University". Travel, explore, experiment, experience, etc ...have them yearning to learnin'. I have travelled to many, many places and nothing I studied in a book, classroom, or lecture hall,( and I have been in many of them) can come any where close to travelling and experiencing REAL life like different people, culture, arts, food, etc. Nothing!
There is a REAL world out there and it ain't in a college or University. One will find their true selves and develop their life's potential by integrating and sharing with other people throughout the world. Mass education develops and creates drones and slaves to and in a system that we stop evolving and growing, on purpose.

Strongsidejedi's picture

@Bushman

Thanks for posting that simple table.

The silver price and gold price have been in a down trend.  Therefore, how does one define a "rising" price vs. "falling" price?

It is my view that the price is falling and the OI is also falling.  Therefore, the market is strengthening.

kingboo's picture

hey Recapture......

i totally agree.....Life U. is probably a better investment.    But with my luck (and gene-pool)   my son would probably end up in a Taiwanese opium den with a 12 yr old prostitute on his lap.....espousing western wisdom to stoned locals.......calling me occasionally to send him some more money.......

recaptureamerica's picture

Turd et al...

Why is anyone surprised at the numbers of anything that the EE releases? Are they to be trusted over any other statistic they release? No...they lie through their teeth and other orifices..if my own child lies to me once would I trust them to tell the truth in the future? Maybe, twice? No .. The trust is broken...so, with government strangers whose M.O. Is to protect their own asses and stuff their retirements and pockets with stolen booty, they lie. I question and doubt any govt numbers for the exact reason as above- Lie to me over and over, why would I start to believe you now?

SE's picture

"Finally, thanks to all who

"Finally, thanks to all who have taken up Andy on his offer and conscripted themselves into the Turdville Army. Beginning Tuesday, we will be sending two, full platoons into battle against the Evil Empire. Good luck and Godspeed, loyal Turdites. Go extract a pound of flesh and a few pounds of profit. Then, report back here in 3 weeks with your success stories so that we might further enlist and grow our force."

------------------------

What are you talking about?  I'm out of touch lately here.  What platoons?  What force?

Haole Guy's picture

They said you were crazy about the negative lease rates...

They said you were crazy about the negative lease rates on silver too, but I took heed of your warning and sold slowly over the peak!  I was fully ready when the dip came.  I'm hoping for the massive turn around soon though because I gambled on June options.  2 contracts.  My bet is the shorts are gonna get fleeced in May and beginning of June.  War with Iran looks imminent just like QE3

recaptureamerica's picture

Kingboo,

Maybe, but IMO probably not...one will find his TRUE SELF going to "Life University" than going to a system developed to drone and dumb us down., so we 'fit in'. Frig that .
Average and normal by the EE standards and criteria is obese, stoopit :), and worse, OK with being so. Nope; not for me or mine. I learned to think outside of the societal imposed limitations. I believe most of all here have too. And if BM(there is a reason she has those initials, and it's not coincidental, IMO) is watching us through proxy... Good. Know this.. We know who you are and what you do.. Your time card is punched.

murphy's picture

Simplistic idea

TF wrote

The only way that gold can be allowed lower would be if the C/C/C can somehow rig global physical demand lower at the same time. If you actually think they can do that (dissuade central banks, institutions and individuals from wanting physical gold reserves), then you should expect lower prices from here.

I agree that they can't stop the CB's, institutions and individuals from wanting gold. What about a market/derivative crash forcing them to raise capital and sell their gold holdings? Never underestimate the depths of their evil.

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