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LAWRIE WILLIAMS: How long for gold market to be controlled by paper gold non-transactions?

As a colleague – Julian Phillips – points out in his daily analysis of the markets on – See: 3.2 million oz of COMEX paper gold crashed the price on Tuesday it was down to paper gold transactions which precipitated the gold market crash on Tuesday.  Phillips noted: “What all physical gold investors find hard to swallow is the gold prices were affected by no physical dealing. Virtually none of these contracts ever reach maturity but are closed before they do so, so no physical gold changes hands”.   Phillips goes on Let’s be clear here, if you demanded physical delivery from such a contract, you would be refused and told to accept a cash settlement. Only if you give notice at the start of your contract that delivery must take place and this is matched to a similarly constructed contract, can delivery take place. Between 95% and 99% of contracts on COMEX never reach maturity or involve such physical contracts.  But with China closed and the ICBC/Standard bank a Chinese market maker in London standing on the sidelines and not jumping in on such price falls to buy, COMEX will continue to dominate.”

We also pointed this out – not in so much detail as the figures were not then available – here a couple of days ago, noting: ‘When the cat’s away the mice will play’ the age-old saying goes, and so it is with the gold markets – particularly the COMEX gold futures market.  This week the Chinese cat is on holiday.  There’s no Shanghai Gold Benchmark to demonstrate positivity or negativity in Asian markets and the bullion bank mice, or should it be rats, have taken the opportunity to once again drive the gold price down – pretty successfully as it happens.  It has been knocked through some key stop loss levels and will probably now find some stability in the high $1200s, before, we suspect, making some kind of a recovery when Chinese markets re-open next week.”  See: Gold price plunges in China’s market absence.

We somehow doubt the timing of the take down – designed to trigger stop –loss sales in today’s computer-dominated  trading systems, will have been coincidental.  Those that have the capability of so-doing very definitely manipulate the markets  (not just in gold and the other precious metals) to their advantage and can make huge financial killings on turns in the markets – see also Ted Butler’s damning commentary - The World's Biggest Financial And Trading Scandal.  Thus the gold market – or any other traded market – is not a place for the unwary unless they can predict what the big money (or central banks and governments if one takes this to the extreme) may do to move the markets every which way.  And this latest move was probably predictable – it’s just getting the timing right which is the difficulty, but a week-long Chinese holiday when we feel that the new SGE gold pricing benchmark had been bringing a degree of stability to the markets See: Is China trying to stabilize the gold price? provided perhaps an ideal opportunity for a take-down without any Chinese interference.

In case one thinks possible government or central bank influence is unlikely, one only has to listen to Larry Summers who has been a government economic adviser to various US administrations and is also one of Hillary Clinton’s major economic gurus.  He has been quoted as suggesting the Fed should consider buying stocks if there were signs of a major equities crash triggered by rising interest rates in order to allay general economic fears that a heavy decline in the stock markets might precipitate.  Given a rising gold price is generally seen as an indicator of currency weakness, how much more so might it be deemed necessary to influence the gold price as a currency protector as again a falling currency is also seen as a sign of economic weakness.  Governments feel the need to project the perception that all is going well – and there’s little doubt that although the Fed is supposedly an independent body it is almost certainly vulnerable to government influence.

While manipulation of markets may well be technically illegal, and is certainly immoral, there is unlikely to be any serious action taken against perpetrators given the market regulators are themselves part of the governmental and economic establishment.  Wall Street protects its own and a seemingly ever rising stock market is hugely profitable for those that control access to it.  In theory all this manipulation will eventually lead to a mega-bust – and perhaps a soaring gold price, but this kind of activity has been going on for years unchallenged by authority – plus ça change.


06 Oct 2016 | Categories: Gold

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