Gold market report: bullion banks going net-long

IMG Auteur
Published : May 25th, 2013
542 words - Reading time : 1 - 2 minutes
( 6 votes, 5/5 )
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
0
comment
Our Newsletter...

24hGold - Gold market report: ...It has been an interesting week for gold. On Tuesday, open interest on Comex fell sharply by 6,961 contracts. The action was in the June contract which fell 12,072, only 3,000 of which appear to have been rolled into the next active month (August). The bulk of the fall in the June number must have been from bears closing their shorts ahead of Ben Bernanke’s testimony to Congress on Wednesday, but we can see from the numbers that the big bullion banks did not supply the stock (see below).

In the wake of his testimony and the release of the FOMC minutes there was huge volatility in all markets, including a 7% crash in Japanese equities. The trading range for gold was over $60, as first the bears took fright over Bernanke’s reaffirmation of money-printing policies, with gold rising nearly $30 in 10 minutes in a classic bear squeeze with the bullion banks refusing to supply stock. The market was then driven sharply lower, probably assisted by official intervention lest people get the idea that gold is better than dollars.

The net position of the four largest traders, which we can assume are all bullion banks, on 14 May was long for the first time for as long as records are available, shown in the chart below.

24hGold - Gold market report: ...

Keep in mind the fundamental difference between precious metals and other financial markets: the former are seriously oversold and the latter seriously overbought. Logic strongly suggests that retreats from these extremes would drive gold and silver up, and equity and bond markets down. Therefore, the action in gold and silver was perverse. The evidence is in the chart below, showing how extreme the hedge fund (managed money) short positions in gold have already become.

24hGold - Gold market report: ...

Factor in the severe shortage of physical bullion and the conditions for an explosive move to the upside become apparent. This is why the market-making bullion banks would be stupid to close their hard-won net long position, and they know it.

The vested interest for lower gold prices lies squarely with the four major central banks, which are most probably going to accelerate quantitative easing. Japan is already doing so; the Fed is backing off earlier suggestions they will slow down; the ECB has a developing euro-area slump; and Mark Carney, Governor-designate for the Bank of England, was this week quoted as applauding Japan’s “bold policy experiment”.

Suppressing gold prices is central to retaining monetary credibility in these extraordinary times. However, there are important geopolitical implications, which I write about in a GoldMoney article for release this Sunday.

Next week

A quiet start announcement-wise, warming up on Thursday and Friday.

Monday: Nothing important.
Tuesday: UK’s Nationwide House Prices. US Case-Shiller Home Prices, Consumer Confidence. Japan (overnight) Retail Sales.
Wednesday: eurozone M3 money supply. UK CBI Distributive Trades.
Thursday: eurozone Business Climate Index, Consumer Sentiment, Economic Sentiment and Industrial Sentiment. US Preliminary GDP and GDP Deflator, Initial Claims, Pending Home Sales. Japan (overnight) Core CPI, Real Household Spending, Unemployment and Industrial Production.
Friday: Japan Construction Orders and Housing Starts. UK BoE Mortgage Approvals, Net Consumer Credit, Secured lending, BSA Mortgage Statistics, and BoE M4 Money Supply. Eurozone HCIP and Unemployment. US Core PCE Price Index, Personal Income, Personal Spending and Chicago PMI.

Data and Statistics for these countries : Japan | All
Gold and Silver Prices for these countries : Japan | All
<< Previous article
Rate : Average note :5 (6 votes)
>> Next article
FinanceAndEconomics.org is the website of Alasdair Macleod, who has a background as a stockbroker, banker and economist. Alasdair is available for seminars, speeches and interviews. Please check on Services to get further detalils.
WebsiteSubscribe to his services
Comments closed
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
Latest Comments
The Fed Is Confused about What Drives Inflation
18 Octneville
Hi Frank, Thanks for your article.......The fact of the matter is that LIES LIKE EVERYTHING ELSE DRIVES INFLATION , which as it so happens is 'THE'...
What kind of person runs for public office ?
17 OctThemis1
I liked the use of the self-actualization chart within the context of politicians and their motives. It probably applies to many in Hollywood as w...
The Silliness of the Bretton Woods Years
16 OctThe Recusant
KUDOS! The book is anti-gold slanted throughout and subtly mocks those that value gold as seen in that silly Las Vegas Golden Rooster tale. As I pr...
The Future (Not)
14 OctS W.-1
I have it on good authority that the Aliens living in Antarctica have discovered a way of turning Ice into Oil. All we have to do to secure ou...
Betrayal!
09 OctThemis1
I agree 100% with all the points you made. You have summarized my own anger and the reasons for it. My only consolation is that I believe the eli...
A silver price-suppression theory gets debunked
07 OctDoom
I think he linked the wrong article, because there's minimal facts and logic there relevant to price suppression. It's a shame, because I really wo...
Light It Up
07 OctThemis
I keep wondering whether the US is fermenting a war with North Korea so as to indirectly draw China in and delay implementation of the yuan-for-oil...
One Nation Under Gold (2017), by James Ledbetter
05 OctThe Recusant1
Sadly, I too hoped for a more even-handed assessment of gold in our economic history. The book IS biased and by the time I got to the 20th century ...
Most commented articlesFavoritesMore...
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS