Wednesday, October 16, 2013

Gold Price Manipulation Receiving More Press

Last Friday gold prices were smacked-down on the COMEX by a huge sell order.  More details are posted here:

The blog-o-sphere from Peter Schiff to Zerohedge was ablaze with commentary about the smack-down.

Gold price manipulation reporting has now gone mainstream as non other than CNBC reported on Friday's market action.  CNBC articles quoted traders.  
"There is only one conclusion that seems logical regarding Friday's gold trade and the one from a month ago, and that's that they were designed to manipulate prices,"
"So huge, in fact, that the trade's impact was felt across the commodity market. Silver and platinum were hit at about the same time, and even crude oil appears to have been affected."

CNBC reporting does not quite put it all together.  Despite reporting on price manipulation they ignore it when discussing gold price action and forecasts.  For example, here is a CNBC video segment where they rationalize short term gold prices with fundamentals ignoring even the possibility of manipulation.    
If gold can't rally now, when can it?Why can't gold rally? D.C. concerns do not help gold, as it shrugs off the Yellen nomination. Gold's next move, with CNBC's Jackie DeAngelis and the Futures Now Traders.
Gold will rally when futures contract holders demand delivery of physical gold in excess of what the COMEX can deliver.  The COMEX will be forced to cash settle revealing the dearth of physical supply.  When the COMEX cupboards are shown to be bare gold investors in GLD will doubt that GLD has physical because GLD's authorized participants are the same banks that run the COMEX.  This doubt will create a run on GLD.  

The run on GLD many have already started.  According to hedge fund manager William Kaye in a King World News interview ". . . when it comes to the ETF GLD, you need about $13 million worth, or 100,000 shares, if you want to redeem the shares for physical gold.  We have a number of our sources who have told us directly that JP Morgan and some of the other bullion banks are in fact turning down investors with 100,000 shares who have asked to redeem those shares for physical gold."

Sunday, October 13, 2013

2 million ounces of paper gold were dumped on the COMEX in 4 minutes last Friday morning driving the price down $30.

2 million ounces is about 62 tons.  The COMEX currently has only 22 tons of registered gold in its warehouses that is available to settle futures contracts, which are often referred to as paper gold.  Total gold in COMEX inventory is 215 tons which includes eligible gold, which is owned by the banks' customers.  Eligible bullion is in the proper form to be registered if the owner decides to reclassify it as registered.  The owners could also decide to move their bullion out of COMEX warehouses.

This sudden, large sale of paper gold triggered 'stop loss logic' that halted trading for 20 seconds.  The COMEX has circuit breakers that temporarily halt trading if it becomes too volatile.  20 seconds is a long time is today computer algorithm driven markets.

As discussed in previous posts, large sudden sales are a sure sign of market manipulation because no rational seller would depress prices while unloading their investment.  A rational seller would sell their position over time, which in this high volume market could be just several hours.

Price suppression like this presents buying opportunities.  But, it will take a while for gold bulls to lose their fear of future price smack-downs in their quest to time a market bottom.  Once gold starts to appreciate, it will really take off.  The fear being left behind will overcome the fear of another, more favorable buying opportunity.  Gold prices have a long history of sudden, dramatic appreciation.  And, gold ownership has never been more leveraged than today.

Monday, October 7, 2013

COMEX Gold has 48 Owners per Ounce, Jesse

Analysis of open interest and warehouse inventory on the COMEX for gold and silver:

Each ounce of registered silver in COMEX inventory has 13 owners.
Each ounce of registered gold in COMEX inventory has 48 owners.

The COMEX has entered contracts with various buyer and sellers of gold and silver.  In summary these contracts exchange metal at a future date for cash now.  The total of all ounces that are under contract is called 'open interest.'  If all contract holders were to demand physical deliver or settlement when their contract expires, the COMEX would currently need 48 times as much physical gold to avoid a delivery default.  This would be similar to a run on a bank.  Banks do not have all their depositors cash on hand.  And, if all depositors insisted on withdrawing their cash at the same time the bank would be caught short.

As you can see from the charts in Jesse's post, historically the COMEX has kept only a fraction of physical metal in inventory to support multiples of contracts.  Currently gold's ratio of 48 is extremely high.

Contract holders typically settle for cash because they do not want to store the physical metal and they probably need cash to pay margin debt that they took on to invest in COMEX contracts in the first place.  With 48 owners per ounce, if more than 2.1% of contract holders stand for physical delivery the COMEX will delivery default.

In a delivery default the COMEX can force the contract holder to accept cash for settlement.   It is not clear what price per ounce would be used to cash settle.   A delivery default would likely send the price of physical gold sky-rocketing.  I suspect that the COMEX would cash settle at a pre-lift-off price.

Central Banks Buying Gold now while Prices are Low

OK, maybe Ben himself does not understand gold prices day to day.  He is not hands-on with the bullion banks' manipulation of the gold and silver markets.  The banks are implementing his strategy.  He does not know how.  Clearly, he and other central bankers are acquiring gold because they find it under valued long term.
Ben S. Bernanke, the world’s most-powerful central banker, says he doesn’t understand gold prices. If his peers had paid attention, they might have stopped expanding reserves that lost $545 billion in value since bullion peaked in 2011.
Central banks, which own 18 percent of all the gold ever mined, will add as much as 350 tons valued at about $15 billion this year, the London-based World Gold Council estimates. They purchased 535 tons in 2012, the most since 1964.

Fraud at Commodity Exchanges - International Edition

Fraud seems to be standard operating procedure at commodity exchanges around the world.  First let's go to England where the London Metal Exchange (LME) is "under fire"
"Without doubt, the main focus of most market participants will be the London Metal Exchange’s review of its under-fire warehousing system. . . . . Together with several warehouse owners, the exchange is at the sharp end of regulatory scrutiny and legal action for long wait times to deliver physical metal."
Moving on to India.  The National Spot Exchange Limited (NSEL) is under investigation by the Economic Offences Wing (EOW) of the Mumbai Police

". . . it emerged that clients of the brokers had been allowed to take out unregulated longer-term forward contracts, rather than spot contracts in commodities such as sugar and wheat, the type of physical trade that the bourse was established to handle. As a result, questions arose over whether there was actual delivery of the commodities that were being traded."
 "Sinha, who is leading the EOW probe, admitted that in scale this was the largest he had handled so far. He added his prime objective was monetisation of the assets and tracing the money trail. But, he declined to dwell on the progress the probe had made on these fronts. The investigations so far by the Mumbai EoW have led them to offices and warehouses in 52 cities across 16 states and were conducted by 210 officers and 260 men."

"During the raids, it has emerged that 30 of the about 60 warehouses our teams raided were found to be empty. This indicates that certain traders allegedly connived with the NSEL officials and did not deposit physical stocks in the warehouses for money they received from the investors," the official told PTI.
"Another shocking thing is that four warehouses did not even exist, though they appear on documents seized from the NSEL and others," the official added.
Gold and silver bullion e-series contracts caught up in NSEL investigation:
"MUMBAI: Bombay High Court today said it would pass order on October 7 on whether the settlement of e-series bullion contracts at the troubled National Spot Exchange Ltd (NSEL) should be aggregated with that of the paired contracts being overseen by the Forward Markets Commission."
"NSEL counsel said e-series bullion contracts involved 800 kgs of gold and 43 million tonnes of silver, estimated to be worth Rs 525 crores."
43 million tonnes of silver must be a miss print.  For comparison, silver open interest on the COMEX is about 18,000 tonnes.  Gold trading is probably minimal give recent severe government restrictions on gold importation.  

In the US, fraud is more sophisticated, as this example exposed by the NT Times shows:
"The Commodity Futures Trading Commission has issued subpoenas to Goldman and owners of other major warehouses as part of its inquiry into irregularities in the aluminum market that are believed to have cost consumers billions of dollars since 2010.""The subpoenas seek all internal documents, e-mails, correspondence, voice recordings and other records concerning the warehouse operations dating back to January 2010, according to two people familiar with the documents. The subpoenas also demand documents and correspondence regarding the London Metals Exchange, a private trade association that regulates warehousing. The subpoenas indicate that the federal inquiry has 30 “areas of interest.”"
Interestingly, a couple months ago JP Morgan announced that its commodity business is for sale.  The risk of fines must outweigh the profits.

First Poland, Now Russia Confiscating Private Pension Assets

If Poland can do it, then Russia can too.  Another precedent for government confiscation of private pension assets: 
"Russia’s government is temporarily seizing $7.6 billion in savings from non-state pension funds while it carries out inspections"

Friday, October 4, 2013

COMEX Contracts Allow for Forced Cash Settlement

According to David Morgan in this interview by precious metals forward contracts allow for the COMEX to force cash settlement.  Therefore, if the COMEX runs out of physical metal it will not technically default.  The discussion of a potential COMEX default begins at minute 14:30 in this video interview.  

There is no reasons to doubt Morgan's read of COMEX contracts.  I like his attitude, "read the contract."  I would like to.  Can anyone refer me to a copy of COMEX precious metals contracts?

This raises the big question of why anyone would use the COMEX to trade in precious metals if there are situations where you could be stuck with fiat currency instead of bullion.  The current price of paper gold must be discounted for this risk.  Amazingly one can still purchase physical from coin dealers for example for near paper gold prices.  The discount can be this small only because every COMEX trader thinks they will be able to get out before there's a run on the vault.

Run you fools . . . 

Thursday, October 3, 2013

JP Morgan's Regulatory Issues Should be Ignored, CNBC

You must watch this, especially if you have any confidence in the main stream business press.   Thank goodness for Matt Taibbi.  The Majority Report is new to me.  I will check them out more often.    

The curtain is pulled back on the presstitutes at CNBC in this video clip:  They really are ready to ignore 'regulatory problems' because Dimon is making record profits at JP Morgan.  The ends justify the means.  Unethical and illegal behavior is a cost of doing business.  And, as long as the ends more than cover the costs it is to be encouraged and rewarded.  

JP Morgan has paid $16B over the last 3 years in fines and legal settlements:   

And, that does not include $6B of 'London Whale' loses in 'hedge' investments that JPM should never have made.

And one more thing, JP Morgan's record profits are coming mostly from zero interest rate financing from the US Fed and mark to model accounting of their investments, not from brilliant leadership.

Gold could go to $1,000/ounce. Really? Rant Warning!

Many precious metals market pundits and news services are losing credibility fast.  The puff pieces are not distinguishable by reading the headline.  I keep getting suckered in to wasting time on speculation.  "Gold could go to $1,000" claims the pundit who has enough credibility to get video time on news.  OK, thanks.  That's nice.  When? and Why?  If you are not confident enough with your market prognostication to provide a timeline then keep it to yourself.  Is gold going to hit $5,000 before private ownership is outlawed and then drop to $1,000?  Will the new dollar be issued for 10 old dollars and be backed by 1/1,000 an ounce of gold?

Why? Why? Why, is your forecast going to come true?  Do you have any new information or perspective to add?  Or, is it just over bought?  Or perhaps the technical analysis shows an inverse head and shoulders pattern just as the market exhibited in 1976.  

What does over bought mean?  There were just as many sellers as buyers!  Is a stock down for the day because it was over bought or because there was profit taking?  My ears now translate these buzz words as "I have no idea, but I need to say something."   

Is there anyone left who thinks that technical analysis can predict precious metals prices over the next day, week, or month?  Did any chartist predict that gold would fall from $1,700 to $1,100 in the first half of this year?  Did anyone forecast that gold would rebound from $1,100 to $1,400 in the last 3 months?  Predictions from charts are doomed to fail because they are based on history.  Precious metals markets are event driven when they are not being manipulated.  Events do not repeat themselves.  They are not cyclical.  Big events are so random that they get named black swan or crash.  

Even if a forecast accurately predicted an event, would it also guess the impact to precious metals correct?  Who would have thought that when the US government shut down the price of gold would drop 3% as it did on October 1st?  That price drop certainly had more to do with the bullion banks dropping large sell orders than with any macroeconomic event.

The bullion banks are manipulating the prices of precious metals on the COMEX and the LBMA.   Trading during the day, week, month and even year is therefore, a function of the bullion banks greed and fear.  Greed to run the stops and fear of physical delivery demands.  Is a technical analysis or chart going to predict that someone would offer 300 tons of gold for sale on the COMEX in 30 minutes at any price as happened in mid April?

Investors have very little reliable, timely information about the precious metals markets.  How credible are the COMEX trading and warehouse data, the Commitment of Traders (COT) reports, and ETP inventory, for example.  We must use these reports because they are the only data available.  Use with a very skeptical eye.  The publishers have the motive and the opportunity to deceive and a track record of greed, corruption, and unethical behavior.

Harvey Organ's daily reporting is terrific.  But, remember that he reports the tonnes of gold at GLD each night and then comments that "There is no doubt in my mind that GLD has nowhere near the gold that say they have and this will eventually lead to the default at the LBMA and then onto the comex in a heartbeat  (same banks)

Only the manipulators can predict short term prices in these opaque, managed markets.  Don't waste my time with what COULD happen.  Focus on facts.  What is happening with physical bullion demand or supply?  Is there anything new regarding confiscation risk?  What premiums are being paid for physical?  Where?  There is a lot to learn and report without resorting to speculation.

Historical Gold Prices Show Volatility - Don't get left behind!

This link is to a good commentary by Michael Kosares at

It is reassuring to know that gold prices have not increased as quickly nor as much as as the NASDAQ in the 90's and gold in the 1970's and oil in the 2000's.  These comparisons do not however prove that gold is not currently in a bubble.  History repeats itself, but maybe the current situation is different.  When was the last time the world reserve currency was dramatically debased while alternative currencies were not available (e.g. the Chinese Yuan) or in worse shape (e.g. Euro and Yen)?  When was the last time that gold prices were set based on a contract to deliver gold and not physical?  The extent of price manipulation in the precious metals markets makes historical comparisons dangerous.  

The chart of historical gold prices adjusted for CPI is a good reminder.  For a gold bull, the historical volatility in gold prices is remarkable.  And, volatility in recent years must be compounded by the advent of derivatives and ETP trading.  Reading from the chart gold jumped from $1,000 to $2,500 in about 3 months back in 1979.  When gold jumps it really takes off.  Don't get left behind.  

Wednesday, October 2, 2013

US Mint Sales of Gold Coins slow in September. Silver sales decelerating.

Sales of gold Eagle and Buffalo coins by the US Mint were 23,000 ounces in September, compared to 21,500 in August and 69,000 in July.  September gold sales were 7% more than in August, which was the lowest month since June 2008.  As of September, year to date gold sales are 904,000 ounces which is 56% more than in 2012 and significantly less than in 2009, 2010, and 2011.  The US Mint reported September sales of 10,000 gold Buffalo coins and 13,000 ounces of gold Eagle coins.

Sales of silver Eagles by the US Mint were 3,013,000 in September, compared to 3,625,000 ounces in August.  September sales were the lowest month of this year and 7% less than in September 2012.  Year to date silver Eagle sales are a record 36,088,000 ounces which is 40% more than 2012 and significantly more than in earlier years.

The US Mint decreased the retail price for an uncirculated Gold Eagle by $50 to $1,625 during September.  An uncirculated silver Eagle retails for $43.95 which is unchanged from July and August.

A quick survey of 3 internet coin dealers shows that pricing for gold and silver Eagles is about $65 and $3.00 over spot respectively.  The premium for gold Eagles is the same as last month while the premium for silver Eagles has decreased about $1.00.  These price premiums are based on purchasing one coin.  All dealers offer volume discounts for larger purchases.  Spot gold and silver market prices are currently $1,318 and $21.88, respectively.

Coin dealers are currently offering to pay about $25 and $1.75 over spot to purchase gold and silver Eagles, respectively.  This seems reasonable because the US Mint charges dealers 3% for gold and $2.00 per coin for silver premiums.  Dealer purchase premiums are not hinting at supply constraints as they were in April and May.

Coin sales by the Austrian and Australian mints have followed the same trend as US Mint sales.

Rik Green's Investors Forum Growth Portfolio down 5% in September

Rik Green's growth portfolio <Port-faux-lio> lost 5.5% in September while the S&P500 gained 3.0%.  CVX which is 38% of the portfolio's value was flat and GG which is 22% of the value dropped 12% during September.  Gold and silver lost 5% and 8% respectively during the month.  PSLV, PHYS, CEF, SLW, and AUY all depreciated about the same as their underlying precious metal.  CDE was down 17% and is almost as low as at the end of June which was the lowest it has been since 2009.  In July, CDE rebounded from its June low and appreciated almost 50% in one month.  CDE is a volatile stock.

Year to date the port-faux-lio is down 11.3% and the S&P 500 is up 17.9%.  Gold and silver ended September at $1,329 and $21.70, respectively which is down 21% and 29% year to date.

In mid-May and August the port-faux-lio traded some CVX shares for more gold and silver related investments.  The trade does not looks so good right now as CVX is currently about flat with its sale price, but SLW, CDE, AUY, and PHYS are down.  This is a good time to double down, because CVX is still over $120 per share and the precious metals are beaten down.

How long can gold prices be smacked down on the COMEX?

How long can the pigmen keep suppressing gold prices?

The short term price of gold on the COMEX is very clearly being manipulated down.  The price smack down yesterday, October 1st is illustrative.

Harvey Organ lists the large, timely sales that smashed the price.  
8:00 AM: 120 Dec. contracts traded
8:01 AM: 4,531 Dec. contracts traded
8:30 AM: 594 Dec. contracts traded
8:31 AM: 8,175 Dec. contracts traded
10:00 AM: 284 Dec. contracts traded
10:01 AM: 1,738 Dec. contracts traded

No rational seller would flood the market with orders like this.  We can be sure that the seller has visibility of the trade book and knows where all participants have set their stops and limits.

Jesse shows graphs of COMEX gold prices and volume by the half hour:

COMEX trading activity yesterday is not surprising.  It is a repeat of the smack down in mid-April and to a lesser extent what the bullion banks have been doing for years to manage the price.

What is surprising and frustrating is that this game perseveres.  Any of these 3 sources could have, should have put an end to the short term paper charade by now.  
1) The CFTC could actually enforce position limit and trading rules.  The bullion banks have had no fear of regulation.  These two recent events are evidence.  I could list hundreds.
     - The CFTC ends 4+ year investigation in silver market manipulation and finds nothing wrong
      - Bart Chilton the Commissioner of the CFTC stated in an email on October 1st that "no regulators are looking at the market due to the government shutdown."
2) Long gold contract holder could stand for delivery and force the COMEX to reveal how little physical gold they actually posses.  The amount of contracts open on the COMEX is typically for about 50 times as much gold as the COMEX reports is eligible for delivery.  So if just more than 2% of contract holders insisted on physical delivery the COMEX would default.
3) Gold investors could buy up any/all sales orders quickly, which seems to be happening today.  As I write gold is up $30.30 or 2.4%  so far today after dropping $41.49 or 3.1% yesterday, October 1st.  

Perhaps it is too much to expect gold longs to buy up large volumes quickly when the bullion banks dump sales orders.  The prudent course is to wait until after prices have been bombed and then take advantage of lower prices.  Of course you would have to be confident that another bull wouldn't start buying before you and drive prices back up.  

Dropping volume on the COMEX will be an indicator of pending market dislocation or default.  When gold longs perceive an increasing risk that the COMEX will not be able to deliver physical gold to those contract holders who opt to stand for delivery, they will shun COMEX contracts as a effective vehicle for investing in gold.  Unfortunately, the reporting of COMEX trading statistics is fraught with potential misleading data.  The bullion banks could, for example trade amongst themselves to pad the volume statistics.  So watch for it, but don't expect to see that warning light until there is steam coming out from under the hood and there are many other, more explicit signs of market dislocation.

October is an active delivery month at the COMEX.  And, December is typically the most active month of the year by far.  The real test for the bullion banks will be December when the most contracts are likely to stand for delivery.  

Lord, how long can this go on!