Ever since the ECB pronouncements of March 10, The Bullion Banks have been in full panic mode, desperate to cap and contain the 2016 rally before new highs are made. That this effort continues today should come as no surprise.
So as we begin this holiday-shortened week, let's summarize this again...
Back on January 29, the price of gold was already up $55 on the year. This initial rally was primarily due to Spec short covering as total Comex open interest had fallen from 415,220 on New Year's Eve to that evening's 373,424. January 29 was also First Notice Day of the Feb16 contract, thus quite a few Spec longs had been closed out, too, in the waning days of January.
Then the rally really took off on the back of an historic rally in the Japanese yen as the inverse USDJPY fell nearly 10% in 10 days from 121 to 111. Gold shot higher and, by February 11, reached an intraday high of $1263. By the close that day and with price at $1248, The Banks had already created over 50,000 new contracts as open interest was 424,537. As documented here ad nauseam, these 51,117 fresh paper contracts represented an additional short obligation of over 5MM ounces of gold, all created by The Banks without ever having to put up any additional physical gold as collateral.
Over the next four weeks, price was flat, closing on Wednesday March 9 at $1257. In a fair market that actually discovered true price, you would expect total open interest to be relatively flat, too. But paper gold IS NOT a fair market. Instead, because The Bullion Banks were intent upon capping the rally...thereby suppressing price, sentiment and physical demand...open interest over that time period rose dramatically by nearly 65,000 contracts to 489,004. These 64,467 contracts represented another 6,446,700 of paper gold obligations for which The Banks were not required to provide collateral. Only by adding all of this new "liquidity" was the price of the paper derivative contract for gold held in check.
All hell broke loose the next day as the ECB announced a startling list of new QE programs, including the plan to directly monetize eurozone corporate debt for the first time. After initially falling on the news, the euro (and yen) soon reversed and remarkably charged higher, with gold closing that day up $16 on the Comex at $1272. The Banks, in a level of sheer panic and desperation rarely seen before, were able to hold that unexpected rally to only a $16 rally by creating from thin air an additional 15,114 contracts that day alone. This surged total Comex gold open interest to 504,118 and a level not seen since 2012. Again, though The Banks added short/delivery obligations of an additional 1.5MM ounces of gold that day, no evidence suggests that they deposited any additional physical gold collateral as the CME Gold Stocks reports remained relatively unchanged.
What happened next? After gold surged higher to $1284 on the "Asia open" that evening, price immediately came under siege. By the morning of Friday the 11th, it had already been maneuvered lower. It was set upon again just before the London PM fix and it was even raided for $12 at 3:00 pm New York time on the Friday afternoon Globex session and finished the day down a remarkable $22 at $1250.
Additional price rigging followed into the next week, as price fell another $19 and closed at $1231 last Tuesday. By counter-intuitively rigging the price lower, The Banks were able to chase back out nearly all of the Spec money that had entered gold the previous Thursday as open interest closed last Tuesday, the 15th, at 493,086. On the chart, the direct and blatant manipulation looked like this:
At that point, it appeared to be "Mission Accomplished" for The Banks. They had successfully scared the most recent 15,000 contracts of open interest back out of the "market" and, though it had cost them nearly 70,000 contracts of new open interest since February 10, price was actually lower versus that date.
But then Mother Fellen struck. Her FOMC "Fedlines" of last Wednesday were nearly the same dovish surprise as the ECB had been the week before. And the "market" response was the same, too. Gold shot higher on the Wednesday afternoon Globex and closed that day up nearly $30 at $1265. And what do you suppose The Banks did to mute and contain this move? They issued over 15,000 new contracts again with total open interest surging back to 508,262 by the close on Thursday.
In what should therefore come as no surprise at all, price was rigged lower back on Friday's Comex session, hammered overnight last night and remains under pressure today with a low thus far of $1241, a full $31 off of the early morning highs of last Friday, the 18th. No doubt, we will now see open interest decline dramatically again today as the price rigging is once again sending this last bit of Spec money back to the sidelines. And, again, for The Banks, it is Mission Accomplished.
So, what can we learn from this and how do we use this information to our advantage? Let's summarize it this way:
- The Banks are clearly not "on the run" nor are "the paper markets failing". Instead, The Bullion Banks remain firmly in charge of the paper markets and they are clearly intent upon capping and suppressing this current rally before it can make any new highs.
- As we've seen in the past, the next goal for The Banks will be to reverse paper gold's momentum in order to drive even more Specs back out of the "market". The Banks will take the other side of this Spec selling and they will buy back as many of their fraudulent short obligations as possible, seeking to close back out the maximum amount of open interest.
- Total open interest above 500,000 contracts appears to be a line of maximum pain for The Banks as it is clear now, on two separate occasions, that The Banks have dramatically intervened to raid price once OI crossed that level.
It's important to note, though, that this DOES NOT mean that a price raid of $100 or more is imminent. With price still well above all of its key moving averages, there are still plenty of bids on the dips...witness today's bounce of $5 from the earlier lows. However, unless a sudden surge of new Spec buyers materializes that drives open interest to 550,000 or more, it's going to be very difficult for new highs to be attained.
Given this, just plan accordingly. Recognize the price raids for what they are and don't panic when you see them. Let's hope that The Banks are unsuccessful in driving price substantially lower and that the increasing physical demand that this 2016 rally is engendering continues. It is only this physical demand that will eventually break The Banks' stranglehold on the paper derivative, fractional reserve pricing scheme. Nothing else will do it.
In the meantime, my plan is to take physical delivery of each and every ounce I accumulate. The day is coming when all of these Bank shenanigans will end and I do not want to be left holding the bag (and simple paper certificates) when the reckoning comes.