We've written about this so many times, frankly I'm not sure if I have the energy to do it again...but we'll give it a try.
Here are just the last three missives on this (sore) subject:
Basically, here's what you need to understand. The only "price" that is discovered on the Comex paper derivative exchange is the price/value of the paper derivatives, themselves. The price discovered is definitely NOT the price of gold.
Whenever prices rise, it's due to a surge in speculator interest in the paper derivative contracts. Prices fall when speculators exit this paper market and move on. To meet this surging demand for the underlying paper derivative, the Bullion Banks that are allowed to operate as de facto "market makers" create and issue new paper gold contracts from thin air. These banks are not required to deposit any metal up front as collateral nor are they required to limit the amount of paper metal they can alchemize on any given day.
Since the beginning of February, the Comex-determined "price of gold" has risen from $1116 to today's $1270. That's a gain of $154 or 13.8%. Not too shabby. But what caused this increase in price? Was it the demand for physical gold? Not really. Instead, it is the demand for the paper derivatives on the Comex...an exposure to gold...and there's A BIG DIFFERENCE.
In making a market for these derivative contracts, The Bullion Banks create new paper contracts (sell short) when speculator demand increases. They then withdraw and buy back these contracts (covers shorts) when price falls. All the while, no actual physical gold is ever put up as collateral or deposited into the Comex vaults. Here's just your most recent example:
On January 29, 2016, The Comex vaults allegedly held 6,430,863 ounces of gold. See below:
As noted above, price closed that day at 16 on total Comex open interest of 373,434 contracts. At 100 ounces of gold per contract, that represents obligations for 37,343,400 ounces of paper gold or about 1161 metric tonnes.
As of last evening, March 7, the price closed at $64 on total Comex open interest of 498,172. At 100 ounces of gold per contract, that represents obligations for 49,817,200 ounces of paper gold or about 1550 metric tonnes.
So, have the Comex vaults increased by 12.5MM ounces over the same time period? Have 390 metric tonnes of additional gold been put on deposit there?
Of course not! There have been a few new ounces that have arrived but, as you can see below, it's not in the tonnage category. This is the report from yesterday, based upon the vault activity of Friday:
As you can see, on Monday the Comex vaults allegedly held 6,816,951 ounces of gold. While this total is up nearly 400,000 ounces from late January, that's a far cry from the 12,500,000 ounce increase in paper obligations. And this assumes that all of the recently deposited 385,000 ounces are actually up for sale or used as collateral for the new paper contracts. How much of the Comex gold really is for sale at current prices? Unfortunately, that's impossible to say and we'll never know.
What we do know is this...The Bullion Banks are the entities creating this paper gold and taking the responsibility for it. On the Commitment of Traders survey of January 26, 2015, the gold "Commercial" position was as follows:
Gold Commercial Gross Long Contracts: 115,343
Gold Commercial Gross Short Contracts: 175,176
Gold Commercial NET short position: 59,833 contracts or 5,983,300 ounces of "gold". Coincidentally, almost the same number of total ounces held within the Comex vaults.
Now look at the latest Commitment of Traders data from the survey taken last Tuesday, March 1:
Gold Commercial Gross Long Contracts: 115,571
Gold Commercial Gross Short Contracts: 287,002
Gold Commercial NET short position: 171,431 contracts or 17,143,100 ounces of "gold". Hmmm. That's interesting, now isn't it?
So, while price has rose through February by nearly 14%, the Big Banks categorized here as "Commercials" saw their long position in gold increase by a paltry 228 contracts. At the same time, their cumulative short position rose by 111,826 contracts. And these very same banks, while increasing their paper obligation by over 11,000,000 ounces, only scraped up about 400,000 new ounces to place in their vaults.
And here's the rub...At the end of the day, how much higher would prices have risen in February if The Banks had not been allowed to simply create over 100,000 new paper gold contracts? If total open interest had held steady below 400,000 contracts, an equilibrium price where willing sellers met willing buyers would have been significantly higher. Instead, to meet the demand from buyers, THE BANKS SIMPLY CREATED NEW PAPER DERIVATIVE SUPPLY. These banks have no intention of actually making physical delivery and the vast majority of the Speculators on the other side of the trade have no intention of taking delivery.
So, this demands the ultimate question:
What price is actually being discovered on the Comex? Is it the price of "gold" or is it the price of an unbacked and under-collateralized paper derivative contract?
Sadly, this confidence game and paper derivative pricing scheme is being allowed to continue indefinitely by the criminal co-conspirators of the CFTC and SEC. Until this exchange finally fails when actually physical delivery is demanded, I'm afraid that we're stuck with it. In the end, though, I suppose that's OK. Having physical price determined by the ludicrous machinations of this current Bank confidence scheme allows all of us the opportunity to buy and stack physical gold at a price that is deeply discounted from its actual value. I strongly suggest that you continue to use this historical anomaly to your advantage.