Cycles of Manipulation: COMEX Option Expiration Days and BOE Auctions

January 19, 2001

Here is another chart from Don Lindley that pretty much speaks for itself. COMEX gold options expire on the second Friday of each month. Major option cycles expire every other month, creating a sharp drop in total open interest as the current month expires and is replaced the following day with a new cycle. The new cycle, of course, begins with zero open interest. The expiring cycle terminates with cash settlement or conversion into futures as for delivery. Each new cycle will require physical gold to support delta hedging of the new puts and calls as they are written. Enter, conveniently, a British gold auction.

At my request, in the chart below Don has placed green triangles to indicate the date of each British auction. The yellow triangles indicate the date of the press release announcing details of the auction, usually a week or so in advance. Last Friday, January 12, marked the end of another major COMEX option cycle. As soon as the new open interest figures are available, Don has promised an update. Contrary to its prior practice, the Bank of England announced in its press release disclosing the results of its November auction that the January auction would take place on Tuesday, January 23. Perhaps it acted early out of concern that an incoming Bush administration might look with disfavor on continued criminal price fixing in the New York gold market. In that event, Katie bar the door, or should I say, close the vault.

Click on chart to see larger version.

Click on chart to see larger version.

Click on chart to see larger version.

China has only 2% of its Total Foreign Reserves in gold.