Banks Playing Same Old Game

77
Wed, Jun 7, 2017 - 9:30am

In what should come as no surprise to anyone around here, The Banks are once again creating as much paper metal as necessary to stall an advance in price. Already twice this year we've seen this happen in Comex Digital Silver and now The Banks are working their alchemic magic in Comex Digital Gold, too.

Frankly, I'm not even sure why I'm taking the time to write about this. You know the drill. You know how this works. And you know how this always ends:

  • The Banks issue paper shorts on metal they don't have nor do they intend to deliver.
  • The Specs buy the contracts for metal they have no intention of ever acquiring.
  • The Banks simply issue enough paper contracts to meet Spec demand.
  • Eventually, Spec demand is sated and price begins to fall.
  • As price falls, Specs sell and Banks cover...thereby closing back out all of the ill-gotten contracts.
  • And The Banks always win because they have infinitely deeper pockets than the Specs. The Banks can simply issue as many contracts as necessary to outlast the Specs.

So here are the dirty details...

At the conclusion of Comex trading last Tuesday, May 30, total Comex gold open interest stood at 434,246 contracts. This was down from 474,848 two days earlier as Specs rushed to close out Jun17 positions before that contract went "off the board" and into "delivery".

In the week since, price has rallied 2.5% from the May 30 close of $1266 to yesterday's $1297. Also over this past five days, total open interest in Comex gold has risen from that 434,246 to yesterday's total of 494,041. Yes, that's an increase of nearly 60,000 contracts or about 14%.

These 60,000 new contracts represent 6,000,000 ounces of "gold" but, of course, no metal ever moves or is put on deposit as "collateral". Instead, it's just the same old game. The Banks issue the paper and the Specs buy it. The Banks know they can simply wait out the Spec demand and their hands are never forced through true physical delivery. In 2016, The Banks waited and waited, issued and issued, until they had run total OI all the way up to a RECORD of 657,776 contracts on July 11. The subsequent late year price collapse then drove total OI all the way back down to 392,000 by early December as the Specs rushed to liquidate their longs. Do you have any doubt that The Banks will simply pull this same stunt in 2017 if they need to?

So...anyway...I guess the point of this is two-pronged:

  1. To alert you that The Banks are gladly playing their same old games in 2017. We've already seen two, full wash-and-rinse cycles in Comex Digital Silver. One will eventually be attempted in Comex Digital Gold, too.
  2. However, with total OI still over 160,000 contracts shy of the alltime high of 2016, there's no need to panic at this point and assume that some sort of "raid" is imminent. There's clearly A LOT of potential Spec buying that is still on the sidelines.

Today so far is playing out about as we projected in last evening's podcast...sort of a non-deal ahead of all the action tomorrow. We'll probably see some small moves up and down but prices will likely stay in this $1290-1295 and $17.55-17.65 range most of the day.

Again, tomorrow brings Draghi, the UK elections and Comey on Capitol Hill so it's going to be a volatile and interesting day. The primary focus of your attention should be on the all-important USDJPY. If it stays down and finishes the week substantially below its 200-day moving average, it should be set for more downside in the days ahead. As you know, this in turn spills over into HFT Spec buying of CDG which, in turn, leads to Spec buying of CDS. So, watch that USDJPY very closely the rest of this week.

One bit of news overnight that you need to see. We mentioned the Banco Popular story in yesterday's podcast and the actual "bail-in" and takeover stuff happened earlier today. The details have been written up and summarized by ZH so be sure to check these two links:

Have a great day and be sure to check back later for a full podcast summary.

TF

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  77 Comments

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imfd
Jun 8, 2017 - 1:40am

Move to Chicago ?

Better be packin' heat, thems some mean streets, perhaps Baghdad might be a better choice.

rckymtn
Jun 8, 2017 - 12:09am

Move to Chicago? hmmm...a

Move to Chicago? hmmm...a certain team will need a new coach about 2 hours east in Indiana after they fire their coach next year.

boomer sooner
Jun 7, 2017 - 9:42pm

Stoops

Glad he decided to quit. His boys need some real father time.

Good chance you'll see one going D1, great reciever with glue hands. Twins, and they'll be seniors this year.

I'll stop there.

Lincoln Riley is a good dude, but reservations about offensive coordinator as head coach. Defence wins championships and Mike isn't cutting it.

Sooner women's softball won the National Championship last night (4th under Patti Gasso). 17 innings the other night was crazy.

Jihk2431
Jun 7, 2017 - 7:09pm

Stoops was always the coach you wanted to see opposite

from you in a big bowl game. He was the most overpaid and overrated coach for the last decade. I think he knew he would be let go over the next couple of years, so he decided to leave on his own terms. Good for him.

lakedweller2
Jun 7, 2017 - 7:02pm

Bears getting sick of Fox

Maybe Big Game Bob becomes a Monster of The Midway?

lakedweller2
Jun 7, 2017 - 7:01pm

Stoops

Blogs say he bought a $2.25 mil home in Chicago a couple of months ago. Maybe he is a Cubs fan. Maybe is going to be a street organizer And run for President.

lakedweller2
Jun 7, 2017 - 6:55pm

Banks With Bailouts

Seems they should be in pretty good shape and their villas on Lake Como freshly painted.

Jun 7, 2017 - 5:21pm

Stoops

Bittersweet, but leaving the program much better than he found it. Not many walk away when things are looking so good. We got a good one in Lincoln Riley though. This has supposedly been in the works a while. Doesn't look like health is the issue...just was his time.

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AIJ
Jun 7, 2017 - 5:19pm

96 % chance of a rate hike

and 100% chance of more fraud.....

Dr. P. Metals
Jun 7, 2017 - 5:19pm

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