The Illegitimacy of Comex Pricing

Wed, Feb 17, 2016 - 12:34pm

We've known for years that the Comex derivative pricing scheme was a fraud, where market-making Bullion Banks create unlimited amounts of paper gold in order to soak up speculator demand. Then these same banks shuffle warrants and warehouse receipts back and forth to create the illusion of physical delivery. But now, even the price "discovered" electronically on this exchange has become completely useless.

Look, I recognize that we've plowed this ground so many times already that you probably think that we've run out of things to write about. Let me assure you that that's not the case and that there is a serious purpose behind this post. First, though, please be sure to review some of the work we've done in the past on the subject of Comex illegitimacy. First, here's an article on the inherent unfairness of the ability of The Banks to simply create new derivative contracts from thin air whenever speculator demand for paper gold increases:

  • And we've recently spent considerable time documenting the fraud of Comex "delivery". Here are two links that summarize and detail the problem:

    This circular charade of delivery continues in February. Recall that back in December, the proprietary (House) account of JP Morgan stopped or took delivery of 2,021 of the total 2,073 gold contracts that were allegedly settled. The primary issuers of this gold were the House Account of HSBC at 818 contracts and the House Account of Scotia at 699.

    And what has taken place so far in February? The House Account of HSBC has stopped or taken delivery of 1,181 contracts while the House Account of JPM has issued 651 back out? Do you see how this works?

    So, we've established that:

    1. The Comex, by design, is inherently unfair as the market-making Bullion Banks have the unfettered ability to issue as many paper derivative contracts as "the market" desires whenever there is speculator demand.
    2. The Comex can only claim legitimacy in discovering price if there is actual physical delivery made at said "discovered" price. However, there is no physical delivery at Comex. Instead, it's just a bi-monthly circle jerk where Banks make and take delivery on a rotating basis. Therefore, the only price discovered is the price of a Comex contract, NOT the price of gold.

    The object of this post is to draw your attention to the third spoke of Comex illegitimacy...the price itself.

    Much has been written over the past three weeks about the "renewed bull market in gold". Price began the year at $1061 per ounce and it reached an intraday high of $1263 last Thursday. That's a 19% move in six weeks and certainly something that all of us in the gold community should be excited about. However, since this price has been found in large part through trading on the Comex and other electronic exchanges, is this really the price of gold?

    Yes, there are physical exchanges of metal that have been made all over the planet based upon this Comex price. Right now, you can visit any of our site's sponsors, affiliates and advertisers and they'll gladly sell you an ounce of gold at the current Comex price plus a small premium. But, again, is the price discovered on Comex really a price of gold, itself? The point of this post is to contend that it's not.

    Here's just a sample of a few headlines this morning. Gold has fallen back to near $1200 and, as you can see, there's much hand-wringing regarding what may happen next:

    The financial media, financial analysts and brokers will all tell you that the Comex derivative price of gold really is a proxy for actual, physical gold. The news articles all reference this price and contend, to varying degrees, that this price is influenced by:

    • "Investors" seeking the safe haven of gold
    • Traders sensing the growing momentum of the trade
    • Hedge funds buying or selling based upon technical factors

    Media, analysts and brokers all watch the "price" rise and fall and reach conclusions regarding the overall market and where it's seemingly headed. "Is this a bull market or a bull trap?", for example.

    But what if I could show you that the price discovered on the Comex and other derivative exchanges isn't influenced by "investors" at all? What if, instead, this "price" was simply determined by the whims of the HFT computers...machines that take their trading cues from signals completely unrelated to the fundamentals of gold, itself? And what is the single most important trading cue for the HFT algos? Changes to the relationship between the U.S. dollar and the Japanese yen, commonly referred to as the trading pair USDJPY.

    Well, we've written about this before, too. We first noticed this phenomenon back in September of 2014. Here's just one example of what we wrote back then:

    ZeroHedge soon picked up on this, too, and they wrote about it in November of 2014:

    Our friend, Paul Mylchreest, noticed the same correlations and he added this terrific piece in December of 2014:

    And it is this correlation that has driven the "price" of gold higher in 2016, nothing else. Oh sure, it's nice to hear anecdotal stories about increased physical demand and "lines around the block", but those fundamental factors have had little to no effect on "price". Instead, it's all about the rapidly increasing value of the yen or, expressed inversely, the rapidly declining value of the USDJPY.

    Below is a chart of the past two months of trading action. In candles, you see the value of the yen versus the dollar. In bars, you have the "price of gold":

    But let's zero in a little bit and look even closer...

    Last Thursday, gold shot higher by over 5% in a move that left many analysts claiming that "the paper markets were breaking" and that "a new paradigm for gold was beginning". But was this the case or was the "price of gold" simply reacting to an historic, 10% move in the USDJPY that culminated with an early Thursday plunge all the way to 111, down from 121 just two weeks ago? Below is a chart of the five days Tuesday the 9th through yesterday, Tuesday the 16th. Again, the yen is in candles and gold is in bars:

    So, did the "price of gold" move based upon fundamentals, physical demand and the emergence of a new bull market?


    Did the "price of gold" simply adjust based upon the whims of High Frequency Trading computers, which "saw" the rapid rise in the relative value of the yen and bought "gold" according to their pre-programmed algorithms?

    Obviously, the answer is the latter and it is extremely important that you understand this significance of this. Why? Because the dollar-based "price of gold" has been largely determined by this sole factor for nearly 3.5 years now. See the next chart, again with yen in candles and gold in bars:

    The chart above explains the charts below. Why has gold moved counter-intuitively since the onset of QE3 in October of 2012? How was the long-standing relationship between US debt, the Fed balance sheet and the price of gold severed? The answer lies in the total market domination of High Frequency Trading as well as the willing participation of The Bullion Banks to cap all rallies in order to maintain downward momentum.

    In the end, what does all this mean? Simply put, the "price" discovered via electronic trading on the Comex and the Globex is NOT a reflection of the price of gold at all. Instead, it's primarily just a reaction of HFT computers to changes in the USDJPY. There's no new "bull market" based upon "investors seeking the safety and certainty of physical gold". Instead, any new bull market in the paper derivative price will simply be a reflection of the continued rally in the value of the yen versus the dollar. That's it and that is all.

    What's fun is that the Bullion Banks have unwittingly sewn the seeds of their demise through their participation in this scheme. This uneconomically discovered price is being used by the Chinese, the Russian, the Indians and wise investors globally to drain The System of its remaining physical gold. Soon, the stockpiles of The West will be liquidated and, once no more physical gold remains, this entire fractional reserve pricing scheme will collapse under its own weight. When might this happen? It's impossible to say however, as this great article from Koos Jansen points out, the West's finite supplies are indeed dwindling:

    So, what do you do with this information? Well, first of all, you don't get caught up in the hype. Now that you know what really affects "price", you should be able to control your emotions both on upticks and downswings. Additionally, here at TFMR, we do quite well at recognizing inflection points and trends in gold and the USDJPY. Forewarned is forearmed, they say, and subscribers to The Vault use this knowledge to their advantage. But most importantly, recognize this:

    The "price of gold" as reported by the media and repeated by analysts and pundits everywhere is no more proxy for the actual intrinsic value of gold than is virtual reality a proxy for real life. You're told that it's real and it may look real but it's not. Not by a longshot. In the end, your best strategy is to mimic the Chinese, Russians and Indians. Recognize the value inherent in the fraudulently-determined "price" and act accordingly by continually converting your paper currency reserves into sound money...while you still can.


    About the Author

    turd [at] tfmetalsreport [dot] com ()


    Feb 17, 2016 - 12:38pm



    Feb 17, 2016 - 12:40pm

    I Want 4th I Want 4th

    I'm Holding Back! Back! Back! Back! Keep Stacking

    Darn it! It's Tough.laugh

    Feb 17, 2016 - 12:45pm


    Excellent post Sir Craig! Very well explained, broken down, and digestable!

    Feb 17, 2016 - 12:50pm

    Thanks Turd, I am glad I am here

    With all that information I learned from here I started using USDJPY for my gold miners stock trading.

    This morning was abnormally where both USDJPY and my Gold miners were both going up, so I sold all my individual gold miners around noon. Now you see what happened Gold miners caught up with USDJPY.

    What a fraud!

    Feb 17, 2016 - 12:50pm

    Please go Public!

    WOW! This is such a cogent explanation. I believe this would really be a great explanation to have spread far and wide.

    Feb 17, 2016 - 12:53pm

    It IS public

    Thanks for the compliments. Please feel free to link, email, etc.

    Feb 17, 2016 - 1:09pm


    Do you have a chart prior to 2012 so that we can see the difference if any between the Dollar and Yen? or do you have a link so we can check it out ourselves. Thanks in advance.

    Feb 17, 2016 - 1:12pm

    I Smell A Rat....

    Last Week: The global stock market plunged with a ton of bad news.

    This Week: The stock market does major reversal with a ton of bad news.


    Is it impossible that the FED/ESF/PPT whispered over the weekend that a reversal in the FED rate increase is coming along with QE if necessary?

    I don't trust any of global ruling class or banking elite...

    History tells us that in every empire collapse be it the Roman empire, French revolution, US revolution, Great depression, or USSR the ruling elite always goes into panic mode near the end and start changing the rules, laws, tax rates, and regulations on the citizens in attempt to hang onto their power and control.

    This is getting uglier by the day and going to get a lot uglier.


    Feb 17, 2016 - 1:13pm

    Excellent Post.

    An awesome explanation of the so-called price discovery situation. 

    It is staggering to me that we find ourselves at this juncture. Nothing in the Financial world is what it seems. Smoke, mirrors, greed and manipulations are the order of the day.

    From the first time Turd first pointed out the relationship to the USDJPY, I have wondered why this relationship exists. To what logical end would an entity program their HFT algo to inversely link paper Gold to the USDJPY? I suspect that the answer to this is only logical in that it serves the purpose of the Central Banks. I believe that the Bank of Japan and the FED are in a very tight incestuous relationship AND consequently the tie between the USDJPY and Paper Gold exists simply because it can – because it can be controlled. There would be no logical financial benefit to this relationship in a fair/real market.

    Thanks Turd - again - a great post.

    Feb 17, 2016 - 1:20pm

    Here you go, Charlie

    This is from about a year and a half ago, when we first figured this out. Notice that the correlation really kicked on at the onset of The Financial Crisis in 2008 when The Banks began unlimited money-printing and fiat debasement. And, as shown in the charts of this post, it has been been nearly 1:1 since the beginning of QE3 in October of 2012.

    Feb 17, 2016 - 1:24pm

    Thanks for the kind words, Reach

    And, as a possible explanation, I would refer you to the ZH link from November of 2014 that's included in the post. This could very well be the BoJ itself that is dominating this trade for theoir own behalf and for the behalf of all the devaluing/printing central banks planners.

    Feb 17, 2016 - 1:25pm


    Sorry to ask this Turd, but why to the programmers choose to correlate with the USDJPY? Why not the USDRUBLE or USDYEN or USDCDN, etc etc?

    What is the significance of that single currency correlation that they want to peg the markets on it?

    Feb 17, 2016 - 1:56pm


    Glenron up 16%+

    Douche up 4%+

    Feb 17, 2016 - 1:59pm


    I agree with your post.

    If we hyper inflate the money supply, then it's to the moon Alice!

    Everyone careful going short the market.

    TF Metals fan
    Feb 17, 2016 - 2:02pm

    Turd's mail

    I got an email of Turd today thanking me for the renewal for another year. Well: it was signed by Turd but probably send y a sexy romantic robot. For me this was a close one. Had no idea my subscription came up for renewal. So I ran the risk that my CC details were expired. They were not and I enjoy an uninterrupted service. But Turd: may I suggest you issue a reminder the week before the new year starts? This would avoid people being disconnected from an excellent service you provide. As to the current developments: yes the link between yen and gold seems evident. But we are above the MA 50,100 and 200. Thusfar very short after a cross between the 50 and 100 ma the actual price came down in freefall, falling well below the ma's it just had crossed. Now it seems we may even see a stabilizing price. And the longer we can hold these levels the rosier the outlook. And with the miners up I feel good. Anyway: thanks for all you do and I look forward to a great new subscription year!

    Feb 17, 2016 - 2:06pm

    February 17, 2016 Santiago,

    February 17, 2016

    Santiago, Chile

    This is starting to become very concerning.

    The momentum to “ban cash”, and in particular high denomination notes like the 500 euro and $100 bills, is seriously picking up steam.

    On Monday the European Central Bank President emphatically disclosed that he is strongly considering phasing out the 500 euro note.

    Yesterday, former US Treasury Secretary Larry Summers published an op-ed in the Washington Post about getting rid of the $100 bill.

    Prominent economists and banks have joined the refrain and called for an end to cash in recent months.

    The reasoning is almost always the same: cash is something that only criminals, terrorists, and tax cheats use.

    In his op-ed, Summers refers to a new Harvard research paper entitled: “Making it Harder for the Bad Guys: The Case for Eliminating High Denomination Notes”.

    That title pretty much sums up the conventional thinking. And the paper goes on to propose abolishing, among others, 500 euro and $100 bills.

    The authors claim that “without being able to use high denomination notes, those engaged in illicit activities – the ‘bad guys’ of our title – would face higher costs and greater risks of detection. Eliminating high denomination notes would disrupt their ‘business models’.”

    Personally I find this comical.

    I can just imagine a bunch of bureaucrats and policy wonks sitting in a room pretending to know anything about criminal activity.

    It’s total nonsense. As long as there has been human civilization there has been crime. Crime pre-dates cash. And it will exist long after they attempt to ban it.

    Perhaps even more hilarious is that many of these bankrupt governments have become so desperate for economic growth that they now count illegal drug activity and prostitution in their GDP calculations, both of which are typically transacted in cash.

    So, ironically, by banning cash these governments will end up reducing their own GDP figures.

    What’s really behind this? Why is there such a big movement to ban something that is used for felonious purposes by just a fraction of a percent of the population?

    Cash, it turns out, is the Achilles’ Heel of the financial system.

    Central banks around the world have kept interest rates at near-zero levels for nearly eight years now.

    And despite having created massive bubbles and enabled extraordinary amounts of debt, their policies aren’t working.

    Especially in Europe, the hope of stoking economic growth (and even the sickening goal of inflation) has failed.

    So naturally, since what they’ve been trying hasn’t worked, their response is to continue trying the same thing… and more of it.

    Interest rates across the European continent are now negative.

    Japanese interest rates are now negative.

    And even in the United States, the Federal Reserve has acknowledged that negative interest rates are being considered.

    They have no other choice; raising rates will bankrupt the governments they support and derail any fledgling economic growth.

    Look at how low interest rates are in the US-- and yet 4th quarter GDP practically ground to a halt. They simply cannot afford to raise rates.

    As global economic weakness continues to play out, central banks will have no other option but to take interest rates even further into negative territory.

    That said, negative interest rates will be the destruction of the financial system.

    Because sooner or later, if banks have to pay negative wholesale interest rates to each other and to the central bank, then eventually they’ll have to pass those negative rates on to their customers.

    Many banks have already started doing this, especially on larger depositors.

    We’ve seen this in Europe where some banks charge their customers negative interest to save money, and in some extraordinary circumstances, pay other customers to borrow money.

    It’s total madness.

    There’s a certain point, however, when interest rates become so negative that no rational person would hold money in the banking system.

    Eventually people will realize that they’re better off withdrawing their money and holding physical cash.

    Sure, cash doesn’t pay any interest. But it doesn’t cost any either.

    If you have a $200,000 in your savings account at negative 1%, you’d have to pay the bank $2,000 each year.

    Clearly it would make more sense to buy a safe and hold most of that money in cash.

    Problem is, the banks don’t have the money.

    For starters, there’s literally not enough cash in the entire financial system to pay out more than a fraction of all bank deposits.

    More importantly, banks (especially in the US and Europe) are extremely illiquid.

    They invest the vast majority of your deposit in illiquid loans or securities of dubious long-term value, whatever the latest stupid investment fad happens to be.

    And many banks have been engaging in a substantial balance sheet shift, rotating bonds from what’s called “Available for Sale” to “Hold to Maturity”.

    This is an accounting trick used to hide losses in their bond portfolios. But it also means they have less liquidity available to support bank customer withdrawal requests.

    The natural side effect of negative interest rates is pushing people to hold money outside of the banking system.

    Yet it’s clear that a surge of withdrawal requests would bring down that system.

    Banks don’t want that to happen. Governments don’t want that to happen.

    But since central banks have no other choice than to continue imposing negative interest rates, the only logical option is to ban cash and force consumers to hold their money within the banking system.

    Make no mistake, this is absolutely a form of capital controls. And it’s coming soon to a banking system near you.

    Until tomorrow, 

    Simon Black


    PS. Clearly a trend with this much momentum requires some deliberate and measured action if you don’t want your savings trapped.

    We’ll discuss this in our upcoming webinar.

    I hate to belabor the point, but it should be obvious that these things are happening, quickly, and I can promise that you’ll get a ton of great information and solutions with the small investment of your time.

    Feb 17, 2016 - 2:11pm


    I sent a question to the info email address. I had a question regarding my credit card billing. I think a old card number was used. I updated my profile. Please get back to me. Thank you.

    Feb 17, 2016 - 2:11pm

    It's likely a carry trade

    It's likely a carry trade and/or a risk on vs risk off trade. Or maybe, as speculated above by ZH, it's a BoJ and Fed-inspired thing, driving the yen lower vs the dollar even during QE3. It's impossible to say.

    Feb 17, 2016 - 2:11pm

    recent quote from the London Bros.

    "... let our privately owned charts control the price of the world's physical silver and gold transactions and we care not whether it's our Comex charts or our ABX charts or ... ... "

    Feb 17, 2016 - 2:13pm

    I have no emails in either of

    I have no emails in either of my inboxes. Please resend to tfmetalsreport at gmail dot com.

    Feb 17, 2016 - 2:15pm


    I sent an email to the other address. Thanks.

    Feb 17, 2016 - 2:15pm
    Feb 17, 2016 - 2:16pm

    Explosion in Ankara Kills at Least 18, Wounds 45 Others

    ANKARA, Turkey — Assailants on Wednesday exploded a car bomb near vehicles carrying military personnel in the Turkish capital, killing at least 18 people and wounding some 45 others, officials said.

    The explosion occurred during evening rush hour in the heart of Ankara, in an area close to where military headquarters and parliament are located. Buses carrying military personnel were attacked while waiting at traffic lights at an intersection, the Turkish military said while condemning the "contemptible and dastardly" attack.

    Of course this comes as no surprise for me. I have been counting the days since I read this from Bob Moriarty just 2 days ago:

    Turkey is about to launch a false flag operation so they can invade Syria

    Bob Moriarty
    Feb 15, 2016

    There are times I wonder if the world has lost its collective mind. There are other times where I don’t wonder at all.

    In 2012 I wrote a piece on the anniversary of the false flag operation conducted on September 11, 2001. That was the attack where the official Senate report on 911 had 28 pages redacted to protect a state sponsor of the attack from the Middle East.

    I’m going to quote from my 2012 piece because it is so appropriate today as we count down the last seconds to a nuclear World War III.

    The issues in the Middle East are far simpler than anyone else has told you. Israel began plans for dominance of the entire Middle East in 1982 with the publication of a paper by Oded Yinon titled, "A Strategy for Israel in the Nineteen Eighties" In it he makes clear, “To survive, Israel must 1) become an imperial regional power, and 2) must effect the division of the whole area into small states by the dissolution of all existing Arab states.”

    Feb 17, 2016 - 2:20pm


    Both central banks are under same ownership.

    Both central banks practicing x-treme money printing.

    There is some relationship between USA and Japan which makes this pair trade in the the best available pattern for the purposes of HFT gold price "making". Maybe there are many similarities between them, such as demographics, debt/GDP, etc, or ratios of parameters. Perhaps there is a correlation of Japan now, vs USA later in population wealth numbers, or something; and the number equalling "now/later" (arbritary, or INTENDED USA outcome) is the key to the algo.

    Remember, they are setting the price of real money with this swindle.

    I too sense a purpose in these two being the paper gold makers.

    Feb 17, 2016 - 2:35pm


    Thank you for the replies re USDJPY. It's really appreciated and helps a bit to understand what is going on.

    joedoaks TF
    Feb 17, 2016 - 2:38pm



    Timing of the correlation commencement is coincident with 2008 crisis ...

    1. Expansion of currency liquidity swap lines with numerous countries Jpn/Eur/UK btwn Fed and respective CBs - might ultimately be backed by ESF?
    2. Jpn is 3rd largest GDP in world @$4.6 T
    3. JPN/US BOT is @ $70 Billion deficit pa. - therefore bias to higher Yen. Other countries have magnitudes less volume within which to bury these interventions and which have sufficient liquidity to effect same
    4. Interesting speculation as to "who" the "programmers" are? Fed? ESF? Chinese? did you see CP's article today? See link

    Great work Craig!

    Feb 17, 2016 - 2:55pm

    @JW, (from the old thread)

    ...I am not convinced that someone simply types on a keyboard and the prices are set.


    ...I dont have any answers, - just asking questions.

    There never will be any answers from the camp that believes that the charts come from the markets, ...that are manipulated by cartels, and central banks, and china, and JPM and HFT Algo trading, and ..., and ..., and ... . Never.

    we've been here for years now watching system believers confound themselves on a daily basis trying to figure out which market entity is controlling chart prices. Is it GOFO rates? "china"? JPM? the JPY? the temperature in Tucumcari? etc. Still no closer than when they started.


    go to and experience for yourself how simple it is for one program to simulate a multitude of real life data and keep it all within acceptable parameters.

    or check hotel prices or airline ticket prices for cities that are hosting major events. The prices will change to best manage the public. nobody sits at a keyboard and does it all manually. it's like a big video game, all running from the same program.

    once you realize and accept this, then the next question becomes "ok, so what is their goal?"... "what are they doing?". The old habitual thinking is to assume that the owners (bros.) want to profit, i.e. make money. We assume this because that is what most people's personal efforts are geared toward. But theirs is not. They own the central banks, they don't need currency. What they have and want to continue to have is CONTROL. 

    once you realize this (it's all about CONTROL) then you start looking at everything in a whole new light. You have completely different suspicions about why a chart might be programmed to go this way or that. Then everything falls into place and makes perfect sense. The chart moves and their accompanying headlines become obvious and predictable.

    But as long as one thinks the game is real, and that things happen based on economic or market fundamentals, or the reason given in the media... it will NEVER make any sense.

    The E=MC2 secret of this monetary universe is that Only Silver and Gold are Money. All system efforts and it's failing are ultimately dictated by that statement. And it ALWAYS applies to every chart move and headline.

    sorry for such a lengthy ramble

    Feb 17, 2016 - 2:56pm

    joedoaks - I think you're onto something

    It must have something to do with the volume of trades. Commerce on a dollar/yèn basis is very high, and BOJ is a complaint/subordinate central bank, as opposed to say, numerous banks in Europe or the PBOC. So, there's plenty of transactions in which to hide interventions. So, a fundamental metric to watch might be US trade deficit to Japan, which would influence the direction in the relative value of the yen....thus gold?

    Feb 17, 2016 - 3:23pm

    Nailed it

    Excellent Post Craig.

    One of your best.


    Cheers G-Rod

    Angry Chef
    Feb 17, 2016 - 3:30pm

    Explosion In Ankara....

    Has anybody ever tried deep fried Turkey ? It's soon to be a Russian delicacy. Borsch and Fried Turkey.....

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