Historically Low Gold OI Levels

I was going to post this into the previous note but then decided that it needed it's own thread.

The Gold Comex is dying. As we speculated late last year (http://www.tfmetalsreport.com/blog/3120/thought-experiment), confidence in the fairness of the CME and Comex is leading investors and traders worldwide to exit the exchange. Growing awareness of the paper game manipulation is surely affecting things but, in my opinion, the biggest driver of this exodus is the failure of the CME Group to adequately backstop customer accounts following the collapse of MFG last October and PFG last month.

The proof is in the numbers so let's go back and review some so that we can look at this in the proper perspective.

3/21/09 - QE is just beginning as the world is stabilizing following the events of 2008. Total gold OI is 388,000.

12/30/09 - Gold ends the year near $1100 and the total OI has risen to 491,712.

11/11/10 -  Gold is now $1400 and QE2 has just been announced. Total OI is now 644,738.

1/25/11 - We had the huge and strange story about a massive, deferred month hedge being taken off and total OI fell 81,000 contracts in one day to 499,000. Very strange.

4/8/11 - As silver is set to move to a peak, total gold OI is back up to 514,000.

8/19/11 - Speculation in gold is rising after the S&P downgrade of the U.S. However, banks are looking to cover short positions even faster. Total OI is near 521,000.

12/30/11 - After being ruthlessly crushed from Labor Day to New Year's Day, total gold OI ends the year at 422,070.

2/28/12 - After a 2-month rally in price, total gold OI peaks at 479,044.

And now, here we are. As of Friday, August 3rd, the total OI for gold is just 389,679. The lowest total OI for 2012, down nearly 20% since late February, and the lowest total OI since The Great Financial Collapse of Autumn 2008.

For a change, I'm not going to tell you what I think this means. I want to hear what you think it means. 

One more thing, silver OI remains nearly constant in this timeframe. It peaked near 150,000 back in early April of 2011 and has bottomed near 100,000 on several occasions. Curiously, since 6/28/12, the total silver OI has been in a tight, 3000-contract range between 121,ooo and 124,000, never once closing above or below those levels. Then on Friday, as gold OI sank to its lowest level of the year, the total silver OI broke out of this pattern to close at 124,503. Huh?

Anyway, maybe this is much ado over nothing but I find it all very intriguing. I look forward to reading your thoughts in the comments below.

TF

101 Comments

ivars's picture

Hi

Hi

XenoFrog's picture

Fireworks

Who knows how long they can keep the wheels on this thing...

criscrossing's picture

Trader Dan

Thinks the big money is going with the trend....to grains and oil.

fats's picture

I think it means...

this site is going to become even more popular very soon.

flaunt's picture

Speculation

I find it very intriguing that gold OI is now the same as it was back in 2009 when as you said things were beginning to stabilize.  Maybe this means that things are beginning to stabilize again and supports the price base-building that has been going on for months.  At the very least it says that there is certainly not an excessive amount of speculation going on presently and that there's a lot of money sitting on the sidelines that will come flooding back in if gold makes a clear breakout in the coming months.

Another and possibly compatible interpretation would be that the lack of trust in the paper markets is driving more money into direct physical possession or just out of the markets entirely.  If the latter, I suspect risk-takers will find it irresistible to open new accounts and get back into the game when it's clear that a price breakout has occurred.

lamare's picture

Hmmm.

Could there be a connection with the tightness of the physical market in silver?

I don't follow all the numbers very actively, but as far as I am aware the silver market is extremely tight, while the gold market is a lot bigger. That suggests that it is relatively easy to get your hands on some physical gold outside of the Comex, compared to getting physical silver. So, if physical silver supply is drying up, then we may be looking at some buyers that have been unable to get their hands on enough physical elsewhere and thus turn to to Comex.

In other words: if we assume that the buyers that left the Comex turned to the physical stuff, then we may be looking at some buyers forced to return to the silver Comex, because they were unable to get physical elsewhere.

And if that is correct, we could see an interesting decline of inventory the coming time..

Of course, this is just a possibility. Could be true, could be rubbish. You decide...

Hagarth's picture

Sure the OI in silver went up

Sure the OI in silver went up up news that margins are down, do I believe that this is from small specs or dealers...my guess is its the banks trying to prop up some support for the CME to harness a few lemmings before stealing from them again. 

@Flaunt I agree with the base building summation, there is plenty of money sitting on the sidelines waiting for the move up or down before allocations are meted out.

Sandiaman's picture

My Take

I think the lower IO is in direct correlation to the volume in the markets. Daily volume has dropped to half of what it was before all the MFG  and PFG and Knight debacles (criminal raids). High frequency trading is all that is in the markets it seems. The markets are not just broken but they are smashed. Get in them at your own risk because you will get smashed. The trap is being set in the stock market to get slaughtered and not just here but worldwide. Wise people are on the sidelines watching.

Byzantium's picture

my 2 cents

With nobody but JPM playing, the price will be whatever they want it to be, without constraint.

GoldMania3000's picture

Physical

I think physical markets could actually start taking over.  if what sprott et all is saying about supply and demand then, market is tight and that will make the markets go north.

Maybe this is what we we've been waiting for....no one playing on the paper market, if silver is short then this could be a probme

Rui's picture

My main indicator is GDX

The volume and accumulation/distribution data keep telling me strong hands are loading at the 40-41 zone.

lostinspace's picture

Gun Control

12th!

After another shooting tragedy, the whore politicians are sure to push for more gun control legislation.  Jiggaboo Jones puts in his 2 cents.

Mickey's picture

Trend is your friend

I believe that once the uptrend is confirmed traders big and small come off sidelines and start playing leveraged paper metals again. And a little bit of everything else.

bam's picture

To make generalizations about the entire COMEX....

...it'd make sense to do similar OI analysis for most major commodities (Oil/Ags/Copper...).

Is this PM specific or are there similar levels of decline in all commodity markets?

If the PFG/MFG concern is there for the market as a whole, you'd see declines in all commodities. 

ACM's picture

J. Jones

   Edward D. Jones prodigal brother no doubt.  "If this was a real state people would fight"

ancientmoney's picture

reduced OI

I tend to agree with you, Turd, that the failures of MFG and others are reducing interest amongst honest traders.  When they own silver, and it gets stolen from them (I think theft is now called "vaporization") through their trading accounts and the proceeds miraculously condense in JPM's account, it gives people pause.

Anyway, before gold can be repriced to counterbalance the burgeoning debt, the paper prices of gold must first be killed off.  So, I expect we'll be seeing ever-reducing OI, even if it means some more vaporization this way comes.

ReachWest's picture

Low OI

I may be wrong, but record low OI may imply that fewer and fewer speculators have any confidence in the whole charade. As Turd has said, only the Cartel and a few algo's left to play in the sandbox.

Edit to add: Here is a copy of the latest RNN silly newscast. Today we discuss the FT story regarding the CFTC Silver investigation and we interview Mario Draghi of the ECB. It's truly riveting stuff.

bam's picture

LOL!

How about Santa's commentary today?  

For those who are depressed over the probability that the CFTC will drop their interest in seeking redress for the clear manipulation in silver, it is not regulators who will put an end to manipulation. It is individual company CEOs that will succeed in civil litigation based on common commercial code and get to discovery whereby information can be gathered under subpoena for those who will obtain the redress.
 
Since almost 100% of them are pussies, a company will distinguishes itself by success in making a recovery from those entities that have practiced illegal means such as manipulation and dirty tricks to profit.
 
iceman321_2k2's picture

Employment Picture

Means the employment picture for the mining industry will become even better...

While Ben Bernanke and company have been unsuccessful in sparking a jobs recovery in the general market, their contribution to higher commodity prices have aided the mining industry. Using data from the BLS, U.S. Global Investors points out that since the end of December 2007 through May of 2012, the best job growth has been in the mining industry, with a rate of 16 percent. The June unemployment rate for the mining industry was 4.8 percent, the lowest among all industries...

http://wallstcheatsheet.com/stocks/the-mining-industry-welcomes-central-bank-qe.html/

pbreed's picture

No one trusts...

There was a time where people worried about what was coming still trusted the market enough to hedge with gold and silver on the comex, after MFG, PFG, Knight, and LIBOR no one trusts the paper markets at all. I've personally closed my futures account and withdrawn what meager crumbs were left after the silver massacre.  As much as I think Ann Barnhardt is a bit crazy... her advice quoted below is exactly correct:

GET OUT.
GET OUT.
GET OUT.
GET OUT.
GET OUT.
GET OUT.
GET OUT.
GET OUT.
GET OUT.

Pining 4 the Fjords's picture

OI drop- the parrot's guess

My stealth reason for OI drop-  if gold is flowing quietly east in significant amounts, that means quite a few contract holders standing for delivery over time rather than just rolling over the contract to a new position (i.e. - speculative money not standing for delivery).  So the total number of contracts floating around is 20-25% less than it was a year ago because this gold has been 'removed' from the Western Banking System over that time.   The post-MFG trust issues western traders have had with the system has simply allowed price to trend sideways over that time, rather than blow upwards as it normally would if the free-market supply of gold shrunk 20-25% as these numbers suggest. 

So 1. gold flowing east and supply shrinking, 2. fewer speculators = less demand, and 3. therefore price doesn't reflect this shrinking supply as it normally would in a market like gold. 

lamare's picture

What if the Comex is being played by a third party??

Remember this from a few days ago?

http://www.tfmetalsreport.com/blog/4062/quick-monday-morning-update

Another important aspect. We have noted some of the many ways China is moving to become the global centre for bullion trading, the latest factors being the upcoming introduction of international facing fully backed rolling spot contracts purposefully designed to compete directly with the LBMA bullion banks and soon the introduction of a Beijing gold and silver fix. This is all part of China’s bigger plan to move the RMB into the world stage on its way to being the world’s reserve currency. Since 2010, we have been reporting an accelerated move by China to purchase gold in order to facilitate the RMB becoming an internationally respected currency. This has been far above the quantities reported in the media.

Now suppose you were in China's shoes, or one of the other BRICS nations, like India. And then put your tin foil hat on for a moment and read this article at Silver Doctors':

http://www.silverdoctors.com/india-blackout-knight-algo-us-india-cyber-war-over-iranian-oil-purchases-in-gold/

India recently defied US Iranian oil sanctions by purchasing Iranian crude with GOLD.
On the night of Sunday to Monday, from 29 to 30 July, a giant power outage blocked much of the country. 48 hours later, a new black-out created a real chaos….. Pure chance? [...] Two days after a cyber-attack against the Indian nuclear power plants, one of the biggest players in Wall Street’s electronic trading, Knight Capital Corp., saw its trading software create chaos in the ratings of 140 shares on NYSE. I bet your hot dog against my lamb curry, that Knight’s software has been “made in India”.

All right. Now let's suppose there is a geo-political war going on and that some countries are attacking Wall Street. Countries that have spent the past few months/years to stack all the physical they could get their hands on.

Now suppose emptying the Comex vault is part of their plan. How would you go about that?

I just took a look of the COT of July 31:

http://www.cftc.gov/dea/futures/other_lf.htm

What information is missing?

Yeah, you got the net long and short positions of various types of traders. But as far as I can tell what it does NOT say is in what contracts these positions are.

Now suppose you would want to empty the Comex vault, being a country with deep pockets.

What would you do? You surely would not want to pay more than absolutely necessary.

So, you would want to suppress the price and thus go net short. But of course you don't want to have to cover your shorts, so you use a long term contract. Let's say 2013 contracts or so, which the EE is happy to buy, since they want to cover their shorts, which means they have to buy contracts.

However, you would also want to cover your a**, and thus would want to make sure you blow the Comex before your shorts expire. And thus, you carefully buy longs with an expiration date *before* your long term shorts. Then, technically, you ARE net short.

Now let's take a look at the Comex silver inventory:

http://jessescrossroadscafe.blogspot.nl/2012/04/comex-silver-inventory-watch-heading.html

There's about 30M oz of silver registered, enough to (theoretically) serve a mere 30M/5,000 = 6,000 contracts.

However, if you suddenly stand for delivery for a LARGE amount of contracts, such as 6,000 contracts out of a pool of 30,291 "large speculators"  and/or 20,755 "small speculators" in a coordinated action,  you could default the Comex and thus would not have to worry about your long term shorts.

Once again, a theoretical possibility which may or may not be too far fetched. I don't know. Perhaps I just did not look hard enough for more detailed data and all if this is total BS.

Ye tell me :)
 

agrock's picture

bar type

anyone know what type of bar this is?  It's just a stock photo from newspaper... but i've got that urge to btfd and add a few to the stack.

achmachat's picture

@ adrock

i happen to know these bars.

They're Turkish.

Nadir Metals in Istanbul.

you're welcome :-)

OrangeAlert's picture

Pining

I agree.

tyberious's picture

Jiggaboo Jones

Talk about offensive and stereotypical! Yikes, I thought that was an NWA video from 1988!

Crimex Have traders just given up or been wiped out by the shenanigans, or they have deployed funds else where.Hot money never stays put for long. Or the scenario that I like most is people are just buying physical!

My 2 copper pennies

Fulgurite's picture

My 2 cents Turd...

My guess is that PM's are about to get crushed, despite the fundamentals.

The market, when compared to equities, oil, bonds etc, is simply too small. Most of my friends think I'm nuts for owning physical PM's and sheeple like that are very easy to manipulate.

The COMEX is, like it or not, still the reference for price, so if the COMEX goes down, so do PM's. Eventually this vacuum will get filled, but by whom and how is still a big question mark. The Chinese buying lot's of Gold? Big deal!

My gut feeling tells me not to have too much faith in the Chinese. I'm regularly in China for work and just like the DVD's and Louis Vuitton bags that they copy, they also managed to copy just about every mistake we made in the West.

From pollution, human rights, traffic grid locks/urban planning, a huge housing bubble, massive credit expansion (printing lot's of Renminbi to devalue it against the USD), buying trillions worth of US treasuries and lousy safety standards, the list is endless, so forget relying on the Chinese for setting up some sort of gold backed currency!

In general, Asians (i.e. Chinese) have a default tendency to attempt to control/plan/manipulate everything. There is very little room for free thinking, free enterprise or any 'out of the box thinking.' Remember, the Chinese drove tanks over their own citizens in 1989 when they weren't able to control/manipulate/brainwash them any more! Now if you were a Chinese bureaucrat which would you prefer;

1) a hard currency coupled to a gold/silver standard which is difficult to control/manipulate or,

2) a soft fiat currency that the politburo can manipulate as they wish, and which they can use to subdue the masses?

My guess is that they will copy the fiat currency system as well! The only difference will be that the RMB (Renminbi) will replace the USD as international reserve currency status...

p.s. if the Chinese were really so smart, then they would have swapped their huge Dollar reserves for Gold and Silver a long time ago! Seems like they have woken up very late to the game...

Dagney Taggart's picture

@adrock

Patrancus's picture

my business and personal cash flow at historic

my business and personal cash flow at historic low levels, not been this meager for 10 years, somethings in the works the dirty birds are telling me it so.

bam's picture

We've had a couple good days in the metals...

...is it time for a Terrible Tuesday?

Are you smelling something Turd?

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