Written by: Avery B. Goodman (01/29/2017)
The price of gold has been generally following the predictions I made on December 9, 2016. So far, so good…
A lot of non-connected hedge funds and other speculators are now heavily short gold. That includes many people who are writing negative comments about the metal, and paying others to write negatively. They have been drawn in by entities who know better, and who are heavily connected to the US Treasury, Federal Reserve, Bank of England, ECB, etc. The latter have likely closed most of their unhedged short positions even as the speculators have increased theirs.
The well-connected have known the gold jig is up for a very long time. They have engaged in what appears to be an attempt at a very organized and deliberate position change. A number of big banks, such as J.P. Morgan, HSBC, Goldman Sachs and others, for example, made huge purchases of gold bullion banker’s bars. They still have big problems from their past activities, but not so much on futures and forwards markets. The remaining problem comes in the form of a huge uncovered “short” position via massive tonnages of gold inside London-based “unallocated storage” schemes. It is possible that the unveiling of the new so-called COMEX “spot” silver and gold contract, as well as the huge physical gold purchases by big banks has been designed to shift this remaining risk.
The temporary downturn in gold prices, last week, is meaningless. It seems quite clearly to have been orchestrated by a few big options sellers. These smarmy folks always use automated trading software, around options expiration week, to trigger stop-loss orders and margin calls. It is done to temporarily push down paper gold prices, for the purpose of avoiding payouts on call options. Generally speaking, gold speculators buy many more gold calls than puts, so paying out on a rise in gold prices usually costs a great deal more than paying out after a fall in gold prices. The incentive to manipulate prices to prevent options from ending “in the money” is huge.
COMEX February options expiration day was the 26th of January, and it was the day of reckoning when buyer and seller determined how much, if anything, was owed on the matured options contracts. It is also my understanding that many of the privately negotiated “calls” at the various London’s LBMA member banks expired on the 27th. If the options dealers had not launched a coordinated attack on gold prices last week, a huge number of their “call” options would have expired heavily “in the money”. That would have meant billions paid out. Naturally, since casinos always make sure that the house never loses, the payouts won’t happen, thanks to the manipulations.
The most important thing to realize is that price manipulations, around options expiration, are always pure paper plays, and have no legs. However, they won’t end simply because access to the US gold reserve is cut off. Such activities will continue until gold options are made illegal, or the people responsible are criminally prosecuted. A change in Presidential administrations may bring a lot of macro-level reform, including replacement of the people at the very top of the totem pole. However, regulatory staff members remain the same, as do the attorneys who work for the Department of Justice. So long as men and women continue to enter and exit federal agencies through a revolving employment and “consulting” door, into banks and brokerage houses, no serious prosecution is ever going to happen.
Far more important than the temporary manipulation of options dealers, however, is the physical market for real gold. January is an off-month for deliveries at COMEX. However, the number of gold futures contracts that stood for delivery this month resembles an active delivery month. That is interesting because COMEX has always been primarily a paper based exchange. Physical delivery is the exception rather than the rule. Delivery has always been theoretically possible, but it has been rarely done. In January 2016, for example, the holders of only 172 COMEX futures contracts demanded physical gold. In comparison, by January 27, 2017, the holders of 1,254 COMEX futures contracts held them to maturity and demanded their gold! That is a whopping 729% increase yoy!
We’ll see what happens in February. There are already an unusually large number of February contracts remaining open on Friday, a day before the first notice day. Monday is the first notice day for the February delivery month, which has always been a major one. This month is shaping up to be mildly historic in size. The overall delivery size looks like it will be at least as big as December, 2016, even though December is normally the largest delivery month by far. One thing is clear. As of Monday morning, holders of matured futures contracts are going to have to put up or shut up. They must either deposit sufficient cash to pay for the gold in full, or face involuntary liquidation.
No matter how massive the physical delivery demand may be, there is always the possibility that dealers will try to attack prices early in the month. They often do this. I believe that the reason revolves around the desire to buy physical gold bullion, from mining companies and others, at a rock-bottom price. They will do everything they can to create a fake price so long as it doesn’t cost them too much. The trouble for them is that, this month, it may cost them more to do it than they save from the results.
There always seem to be a number of “stragglers” among the contracts that are open on the first day of delivery. These speculators cannot afford to pay for their gold, but seem to foolishly hold onto their contracts anyway. They end up involuntarily liquidated and that process will always facilitate downward price manipulation. Because of the prospective size of February’s physical delivery (which is probably mirrored at the LBMA in London), however, gold prices should be resilient to this type of manipulative activity.
I think the rise in gold prices will begin, in earnest, somewhat earlier than usual this month. It should occur, at the latest, by the middle of the month, or even a lot earlier, as opposed to the typical late-in-the-month price rise that often occurs during big delivery months. The massive and very unusual physical demand in January is likely to have exhausted many of most easily accessed supplies, which will make it particiularly difficult for banksters to maintain such shenanigans.
Looking further out, as I have said before, other precious metals prices in 2017 will also be driven upward, by being cross traded with gold, as a result of the closure of the US gold reserve. A vast majority of the people surrounding President Donald Trump are not inclined to allow continued drainage of America’s golden treasure. Incoming Treasury Secretary Mnuchin has given lip service to the “strong” dollar policy, but both he and President Trump have stated that the US dollar is now overvalued. The impact of lower exports and higher imports on GDP has already showed up in dismal GDP performance numbers.
Political cooperation with bankster driven gold price manipulation has always been primarily driven by a desire to stabilize and/or prop up the exchange value of the US dollar. Since America’s leaders now want the dollar down, not up, giving access to the US gold reserve makes no sense. It will be cut off as soon as Obama’s gold-related executive orders come to Mr. Trump’s attention. That should happen a few days after the new Treasury Secretary is confirmed. I have no doubt that the dealers are acutely aware of the fact that Obama’s not-so-secret orders, opening up the gold reserve to gold location swaps and other access, are now history. Downward price manipulation, at the current low pricing point, will become difficult or impossible. In the absence of the US Gold Reserve, prices must rise substantially before highly profitable manipulative activity can begin again.
The reversal of Obama’s executive orders are likely to be as much of a secret as the executive orders themselves were. I don’t expect any formal announcement as such. When it does finally happen, however, there should be a sudden price surge. That doesn’t mean gold is suddenly going to rise to $5,000+ per ounce. That will eventually happen. However, normal markets do not rise like rocketships. Prices may rise by $75 to $100 over a week or two. That is healthier than a massive $300 overnight skyrocket. Massive quick increases in any asset price, in the absence of some unusual major outside event, is the result of upside oriented market manipulation.
We will eventually see a lot of upside manipulation in gold prices (followed by repeated short price collapses) as manipulators turn their attention to profiting, in a different manner, from price volatility. The key point is that when gold prices finally move above the equilibrium point between supply and demand, they can be pushed upward, and then allowed to fall, without any need for physical gold. Until that change in orientation, however, we will see prices driven upward solely by the continuing excess of physical buyers over sellers.
Note that physical precious metals buyers, unlike futures market speculators, are thrifty people who don’t like overpaying. This won’t stop the early stages of a fast price rise, but it will begin to put downward price pressure, in the short run, if prices go too far too fast. Physical buyers stop buying when prices rise very fast. They will resist purchasing until they get used to new prices. The process requires time. That’s why gold price destabilization, rather than price suppression, is the primary goal of gold market manipulators. I expect the price of gold to rise slowly but steadily back to its prior supply/demand equilibrium point (somewhere between $1,500 and $1,600 or a bit higher).
If major upside manipulation events begin or a major outside event occurs, like a major default on corporate and government bonds, widespread insolvency of pension plans and/or the demise of the Euro currency, the sky will be the limit. Evidence of fiat currency instability will be so high, once the Eurozone collapses, that a much higher floor will be put underneath precious metal pricing.
– Josh Pullman –
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