Banks Playing Same Old Game

June 7, 2017

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 all-time 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 gold and silver 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.

www.tfmetalsreport.com/subscribe

Due primarily to the California Gold Rush, San Francisco’s population exploded from 1,000 to 100,000 in only two years.