The "markets" for precious metals have become a farce. That gold and silver...TRUE, SOUND AND UNIVERSAL MONEY...continue to be valued at the whims of computer trading on The Comex is a disgrace and a complete sham.
This post is not intended to be an overwhelming study of the evidence. My concern here is simply to show you how this works on a daily and intra-day basis. Besides, the late Adrian Douglas left us all with the seminal research on many of these same issues. Just simply Google his name if you want to read more.
The first thing you need to understand is that The Comex metals pits have become a ghost town. Back in the day, humans interacted with other humans and "price" was determined at the intersection of paper supply and paper demand. But now:
- The vast majority of trading are electronic transactions, made between HFT computers.
- And volume and liquidity have declined dramatically. As recently as 2010, the total open interest for Comex gold was near 650,000 contracts. As of last Thursday, total OI was just 381,000. A drop of over 40%.
And let's discuss #2 further...Much of the open interest disappeared after the MFGlobal disaster of 10/31/11. Once the CME abandoned their fiduciary responsibility to MFG account holders, many market participants left The Comex, never to return. Additionally, many are barred from returning as their Compliance Departments now prohibit them from trading there.
So, we're left with a "market" that has roughly half the participants and liquidity that it had three years ago AND very little rational, human trading. This, of course, is the perfect market setup for the manipulative bullion banks.
Recall the entire, counter-intuitive move from late last year. Once price was manipulated down below the 100-day and 200-day moving averages in February, to continue the slide all the bullion banks had to do was foster conditions that maintained this negative technical picture. The Large Spec HFTs continued to sell paper gold, in the process building up a record net short position and, into this selling, the bullion banks bought and covered. So much so that JPMorgan, the biggest and most destructive bullion bank, has been able to convert what had been a 75,000 contract net short position into a 75,000 net long position, instead. The point here is this: As long as The Bullion Bank Cartel can maintain a negative technical picture, the Spec algo HFTs will continue to sell paper gold and keep price low and we've seen this demonstrated rather dramatically in just the past week.
Recall that, every Friday, the CFTC cranks out what they call the "Commitment of Traders" report. This is an aggregated summary report of the positions of all market participants, based upon a survey taken at the Comex close the previous Tuesday. So, the report we got yesterday reflected the combined positions as of last Tuesday. And why is this important?? Because the main event this week, The Big Daddy, was the release of the FOMC "Fedlines" and remember that those were released back on Wednesday, the day after the latest CoT survey was taken.
And what did we see in this latest CoT report for gold? For the reporting week:
LARGE SPECS: Dumped 2,500 longs and added 7,400 new shorts. Net change = 9,900 net short
SMALL SPECS: Added 100 longs but also added 5,000 new shorts. Net change = 4,900 net short
CARTEL BANKS: Added 3,700 new longs and covered 11,100 shorts. Net change = 14,800 net long
So, in the week leading up to "the most important FOMC headlines ever", the bullion banks led the Specs into selling a net of nearly 15,000 contracts so that they could buy and cover 15,000.
Of course we all know what happened next. At 2:00 EDT on Wednesday, after The Comex had closed for the day, the Fedlines are released. To nearly everyone's surprise (except us in Turdville), no change in the $85B/month was made and the precious metals soared. What happened? Was this new buying or simple short covering? No doubt there was some of both but what can we deduce from the latest open interest numbers?
As of Thursday's close, total gold open interest had declined over 3,000 contracts from Wednesday. The only way price rises while open interest falls is by short-covering and closing of positions. This is what drove prices on Thursday and I have no doubt that this is how it played out:
- After price had convincingly broken back UP and through both the 50-day and 100-day moving averages, the HFT specs algos were tripped into "buy" mode.
- This caused a spike in Spec short-covering which the bullion banks used to sell some of their accumulated longs.
- On Thursday, however, rallies could never get any traction. Spec buying would enter and drive price up, only to see it be almost immediately capped by Cartel bank selling. Several attempts were made to rally but each one was suppressed. It looked like this:
- All day Thursday, the same HFTs that were selling last week and building a short position were now buying and building a long position.
- Having now tricked the Specs into selling last week and then buying on Thursday, all that was left for The Cartel was to foster the conditions that would trick the Specs back into selling on Friday. And that is EXACTLY what they did.
The first attempt to break gold back down came at the regular, appointed hour of 2:00 am EDT on Friday morning. This London-based selling successfully dipped price all the way back down to the 100-day moving average near $1353. When that level held however, more drastic measures had to be employed and, twenty minutes before The Comex opened, we got another blast of Cartel selling which finally drove price down and through the 100-day MA.
(IMPORTANT: How do we know that this is deliberate, manipulative Cartel selling? Simply put, no other entity would summarily dump a large amount of contracts onto such an illiquid market as the pre-Comex. A human, for-profit trader would wait until The Comex open in order to ensure the best possible execution.)
By jamming price back down and under the 100-day moving average, The Cartel had succeeded in setting the tone for the day. The same, brainless Spec HFTs that had so quickly bought and covered on Thursday were flipped back into "sell" mode. With price back below the 100-day MA and then, later in the day, back under the 50-day, too, the Spec HFTs mindlessly sold and sold and, of course, into this selling, The Cartel Banks bought and bought, successfully and profitably covering all of the shorts they had employed in capping price the day before. This is textbook Market Manipulation 101. This is how it works.
And now we're left with gold and silver charts that are clearly tilted lower. Prices will almost certainly decline even further on Monday as additional, technical-based Spec HFT selling comes in. And, as usual, into this selling The Cartel will be buying new longs and covering shorts. Once we get to the point where the spec selling abates or physical supply issues rear up again, The Gold Cartel will sufficiently paint the tape once more to flip the Spec HFTs back into "buy" mode and the whole process will repeat.
The WINNERS = The prop trading desks of The Bullion Banks
The LOSERS = All of the Spec money, both large and small, foolish enough to think that they are participating in a free and fair market.
And now you should be asking yourself: HOW and WHEN will this ever end?
It will only end WHEN the fractional reserve bullion banking system finally breaks. We know that the system is already cracking and unraveling as registered Comex inventories and deliverable ounces per contract have both reached record and extreme levels. See these two charts courtesy of Jesse:
One day in the future, Comex gold trading will simply cease. Trading will stop and all naked shorts will be forced to cash-settle every long at the previous day's closing price. Following that, gold will find a new valuation based solely upon the price level at which market participants are willing to exchange physical metal for some type of other currency.
Until then, the world is forced to continue participating in this current farcical scheme. True, sound and universal MONEY, literally valued for millennia as stores of wealth will, in the meantime, be subject to the pricing whims of a bullion banking Cartel concerned with nothing more than their own profits and survival.
Your only option in this environment is to continue to accumulate physical metal at these deeply discounted prices, while you still can, using the Cartel's tactics against them and assisting in their ultimate demise.
p.s. I discussed many of these topics yesterday with The Doc and Eric Dubin at SilverDoctors: http://www.silverdoctors.com/metals-markets-with-turd-ferguson-fed-monkeys-lose-control/. You can also listen to it here: