More Strange Action In Precious Metals

On Friday, open interest hit a new high of 401,687 contracts on the COMEX. As you can see on the graph below, someone shorted an additional 10,000 contracts (one million ounces) in the last two days of last week.

Confusing precious metals data being released

Below are some reports on the activity of precious metals at the COMEX from Contrarian Profits. These reports should give a good feel for the strange data being released.

And Then There's This...Monday, June 01st, 2009

Friday was first day notice for delivery into the June contract. Of the 9,618 gold contracts standing for delivery, only a smallish 1,512 contracts were actually delivered [16% of gold contracts standing for delivery]. In silver, a rather large 331 contracts was delivered on first notice day...but that was the lion's share of the 354 contracts that stood for delivery yesterday [94% of silver contracts standing for delivery]. Ted and I were both surprised about the small number of gold contracts delivered. Maybe the big delivery days will be early next week. I'll keep you posted.

Gold prices on Friday May 29 are shown by red line

And Then There's This...Tuesday, June 02nd, 2009 Contrarian Profits

The open interest numbers for Friday's big up day in both gold and silver were not what I was expecting at all. Gold o.i. actually fell 3,138 contracts to 388,632 on smallish volume of 114,359 contracts. If someone had actually been covering their short positions, Friday's price activity would have been much more spectacular to the upside [Agreed, which suggests that deliveries are being understated]. Silver o.i. was only up 58 contracts to 102,631 on pretty big volume...33,164 contracts. My bet is that the N.Y. bullion banks were actually going short against all longs in both they've been doing all along...and that it was disguised by spread trades being lifted. The cut-off for this Friday's COT is at the close of trading today. This data will most certainly be in it.

The Comex Delivery Report indicated that another 850 gold contracts were delivered another 17 in silver. I also noted in yesterday's COMEX numbers that by the time the smoke cleared on Friday, there were only 4,931 gold contracts that were standing for June delivery. From that, you have to subtract the 850 deliveries yesterday, so there's about 4,100 contracts left to deliver in June...which isn't a lot...410,000 ounces. There was no news from the U.S. Mint or the ETFs...either GLD or SLV. All I can tell you is that both the GLD and SLV are owed a lot of metal. Ted figures that the SLV alone is owed in the neighbourhood of 25 million the boys and girls at SLV are shorting the shares since they don't have the physical. It will be interesting to see how long it takes them to get it...unless their custodians [JPMorgan in silver and HSBC USA in gold...the ring leaders of the gold cartel] can engineer a horrific sell-off in both metals so that it never has to be delivered. If you think that reeks of conflict of would be right about that! And lastly, silver inventories at the Comex-approved warehouses fell 271,411 ounces yesterday.

And Then There's This...Wednesday, June 03rd, 2009

Yesterday, the Comex Delivery Report showed that 184 gold contracts and 16 silver contracts were delivered. With those 184 gold contracts, that only leaves about 3,550 gold contracts left for delivery in whatever is purchased and delivered between now and the end of the month. Over at the U.S. Mint, they reported that 3,000 one ounce gold eagles and 337,000 silver eagles have been minted so far for the month of June. And over at the Comex-approved warehouses, silver inventories rose 999,379 ounces. [remember this, and see below]

And Then There's This...Thursday, June 04th, 2009

Changing the subject briefly, I want to take a quick look at the open interest changes for Tuesday's trading...which was the last up-day before the slaughter yesterday. Gold o.i. rose 2,463 contracts to 391,057 on light volume of 96,287 contracts. In silver, o.i. also rose another chunk...this time by 1,487 contracts to 104,986...on eye-popping volume of 47,060 contracts traded. That's the biggest number of contracts I've ever seen traded in silver [record breaking volume]. Tuesday's open interest numbers should be in tomorrow's Commitment of Traders...fingers crossed. Open interest numbers for yesterday's horrific down-side price action will be out around noon, New York time today. Ted and I are more than interested in what they are. If you want to see the numbers for yourself when they're updated, the link is here.

The Comex Delivery Report for Wednesday showed 438 gold contracts delivered...and two in silver. As you can tell, June is not a big delivery month for silver...but having said that, 366 contracts have already been delivered in June, and it's only the third day of the month. That ain't chopped liver...and there will undoubtedly be more before June is in the history books.

And Then There's This...Friday, June 05th, 2009

I mentioned yesterday that both Ted and I were looking forward to seeing Wednesday's open interest numbers when they became available on Thursday. We both thought that there would have been some decent tech fund long liquidation and bullion bank short covering after the big hits that gold and silver received. We were wrong. Open interest in gold was up a fairly large 4,866 contracts to 395,923. Volume was pretty decent at 135,432 contracts. Silver's huge drop in price [almost a dollar between its Wedne sday's high and low] showed an increase in open interest as well...up 1,187 contracts to 106,173. Volume was another big number...44,965 contracts.

Ted's comment to me was that he didn't know what to make of it, although he did point out that even though the price declines in both metals were pretty big, no major moving average was violated to the downside...and that may explain why there was no liquidation. As far as I'm concerned, there's only one way that prices can drop on a rise in open interest...and that is if someone is putting on a huge short position. Of course, the secrets behind Wednesday's open interest numbers will not be available until the June 12th Friday...not today. When the boyz are making a move in the markets, they don't like people finding out what they're doing until long after the fact.

The Comex Delivery Report yesterday showed that only 104 gold contracts...along with two silver contracts...were delivered yesterday. There are still about 3,450 gold contracts [subject to change at any moment] still to be delivered in June. Over at the U.S. Mint they have increased one ounce gold eagle production another 12, 15,500 for the month of June so far. In silver eagles, another 40,000 have been minted, bringing June's total up to 377,000. And at the Comex-approved warehouses, a fairly large 1,003,931 ounces of silver were taken out of inventory. [Wasn't 1 million ounces of silver just added to COMEX warehouses two days ago? What is going on?]

My reaction: The strange activity in precious metals includes:

1) A surprisingly small amount of gold contracts were delivered, especially when compared to silver. Only 16% of June gold contracts standing for delivery on Thursday were delivered compared to 94% of June silver contracts.

2) The open interest numbers for Friday's big up day in both gold and silver unexpectedly/unexplainably fell. If shorts had actually been covering their positions, Friday's price activity would have been much more spectacular to the upside. This suggest that perhaps there were more deliveries than reported.

3) There has been record breaking volume of contracts traded in both gold and silver in the last few weeks.

4) There have been large strange fluctuation in COMEX's reported silver inventories.

My Suspicions:

Delivery requests are being understated. There is only one thing that can make open interest go up: someone sells new contracts to short gold. However, there are two things that can cause open interest to decrease:

1) Short covering—Shorts buy back contracts they sold.
2) Deliveries—Shorts delivery gold to settle contracts.

I believe open interest for gold fell on Friday because of deliveries that were, for some reason, not reported. As for what is happening with COMEX's silver inventory or the eye-popping volumes being traded, I have no idea, but it is strange.

About Friday's price plunge

If you remember from my entry on How Governments Manipulate the Gold Market, Friday afternoon is a popular time for suppression of gold prices.

The limited liquidity that is the dominant characteristic of the New York market on Friday afternoon makes it easier for the interveners to get bigger price moves, which then gives them a corollary benefit. A big price move can scare people, particularly when they have the whole weekend to think and worry about what the next week will bring. That result gives governments even more 'bang for their buck'.

Below is the 24 hour gold chart for Wednesday, Thursday, and Friday of this week. Notice the 30 dollar drop on Friday? Also notice that all the big drops take place after the COMEX opens?

So it is pretty clear what happened Friday. Shorts increased their short position and caused a small dollar rally, trying to knock down gold prices going into the weekend.

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11 Responses to More Strange Action In Precious Metals

  1. Anonymous says:

    I'm taking advantage of these $25-40 swings on the FOREX exchange while the gettin' is good.

    Routing profits out of USD then getting as much PM's, foreign currency, food, medical supplies, guns and ammo while I still can.

    Gonna get nasty here in about 6 months.

    Fail to plan. Plan to fail.

    Ed in CA

  2. Pohon Bodhi says:

    People says silver is less available today than 2 decades ago. But still the Big Boy can manipulate it's price.

    If they can do it with silver, they can also do it with gold.

    The time we witness gold & silver "skyrocket" could be years, if not decades, away....... or couldn't it?

  3. Anonymous says:

    why should we invest in gold/silver if government can manipulate the price like this. Theres no limit to how long they can get the price down because they can print money

  4. Anonymous says:

    Hello Eric,
    You gave a comprehensive view of what is happening in the precious metals market, thanks.
    I want to add some perspective: Gold in euro is more or less flat since may 5th with a range of 671 to 691 eu/oz based on London’s pm fix. The chart of $GOLD:$XEU shows a small move upwards but that could be noise as well.
    In Germany, Austria and Switzerland is currently a huge demand for gold bullion. In the first quarter of ’09 the bullion demand was with the numbers for first quarter of 2008 in brackets:
    Germany 59 metric tons (11.8 t)
    Austria 22.7 metric tons (1.9 t)
    Switzerland 39.2 metric tons (7.3)
    For the USA the numbers are 39.2 metric tons (7.3)
    Source (in German)
    Gold in yen shows a stronger uptrend then in euro, in the p&f; chart even an outbreak from a double top. If the price is manipulated, the manipulators have to stop the trend early before it gathers steam. As far as I know the Japanese calculate in yen per gram; the price is now around 3,000 what might be a point as important as a DJI of 10,000.
    Moreover, the dollar needs/needed urgent support ad a DX of 78.
    All this seems to be related but it is not clear what drives and what follows.

  5. Jimmy says:

    In the last 6 weeks, the spot prices for gold and silver went up a lot. That means lots of buying. However, the premiums for gold/silver bullions at bullion dealers ( etc) went down a lot. That means less buying. Spot price and retail premium were in the opposite direction. What was going on? A big puzzle for me.

    Kitco and somenone with HSBC New York told me that there was more selling.

  6. Anonymous says:

    Also quite readable concerning the bond markets and the gold action:

    The article gives a good feeling regarding the US treasury bond market. I also agree with the article, seeing the gold moves in the last months, that the US government will simply not allow gold above 1000 USD.

    Evenly interesting is that the ECB plays the role of a european bad-band since 2007. The ECB accepts unmarketable securities from the banks in return for central bank cash. Regarding the total amounts of the transactions no clear numbers are available. It is assumed to be in the mid 3-digit billions. Source (only in german, but with lots of additional sources):

    We will see how log that whole thing is sustainable.

  7. Anonymous says:

    Couldn't this be another form of Dark Pool activity?

  8. Numonic says:

    "Pohon Bodhi said...
    People says silver is less available today than 2 decades ago. But still the Big Boy can manipulate it's price.

    If they can do it with silver, they can also do it with gold.

    The time we witness gold & silver "skyrocket" could be years, if not decades, away....... or couldn't it?
    June 8, 2009 3:01 AM
    Anonymous said...
    why should we invest in gold/silver if government can manipulate the price like this. Theres no limit to how long they can get the price down because they can print money
    June 8, 2009 3:09 AM "

    Pohon they don't manipulate the price low by giving out physical silver, they manipulate it down by giving out Federal Reserve Notes which are allot more easier to produce than physical silver but at the same time since this enormous $1.4 quadrillion debt is deleveraging, all those existing Fed Notes and all the newly printed one are being drafted to plug holes(stop defaults) and this is why, when gold/silver goes down in price the economy takes a hit in another area(i.e rising treasury bond yields, rising defaults, declining stock market etc.) The govt. has lost control and it is right in front of your eyes. When another large event calls more dollars in to stop defaults(i.e commercial real estate due dates) it will be harder to move those dollars to the gold/silver market to keep the price down. Basically they don't have enough fingers to plug the holes in the dike. The simple math everyone should know is that the credit contraction can and is taking $100 from the money supply allot faster than the printing presses can print $100. So if you know this, how can you possibly expect your bank accounts or any bonds/trusts/funds/debt to be safe? Hoard your physical gold and silver NOW. And if you still don't understand that the more defaults there are the more prices of things rises then you need to read my past replies explaining it.

  9. Anonymous says:

    The third comment in this series of comments provides figures for the demand of gold bullion in some European countries. For instance, Switzerland demanded in the first quarter of this year (2009), 39.2 tons of gold bullion - the same amount of gold bullion bought in the US during this time. However, since the US population is 300 million while the population of Switzerland is only 7 million, the Swiss gold demand per capita of population is almost 43 times as high as the demand in the US. If true, that would be really an astonishing fact.

  10. Anonymous says:

    not that surprising about switzerland and not a fair comparison really. Switzerland is where the wealthy people stash their wealth

  11. Anonymous says:

    Huge market spike as US markets opened on the 5th. Looked to me like it was Gold related all markets reacted together including all currency charts on my screen I would`nt be suprised if Banks were taking delivery out the back door show them a Law or Rule and they will break it. Look at whats been going on with the DJA it`s run up in the after hours session on light volume then sold off during the days trade thus giving the impression of new daily hi`s some are buying it, take care. Trader.

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