Thursday's Raid On The Gold Market

Investment Research Dynamics

As everyone knows by now, gold and silver took significant hits to their price last Thursday. While most analysis and commentary have attached this hit on the metals to the Fed’s FOMC meeting on Wednesday, the data shows that it is yet just another open interest raid directed at the high number of open February gold contracts one day ahead of the “first notice day” for Comex Feb gold.

“First notice” is the first day of the contract month’s delivery period in which any investor holding a contract can get “noticed” for delivery of the gold represented by the contract (100 ozs.).   In order to hold for delivery, the contract holder must have an accounted that is fully funded for delivery.   Whenever the open interest is unusually high going into first notice, the Comex bullion banks always orchestrate a contract open interest price raid.  Last Thursday this is what occurred.

I did a podcast with Eric Dubin (The News Doctors) and “Doc” (Silver Doctors) late last week in which we discussed this bullion bank drive-by hit on gold and some other timely topics.   You can listen to that podcast here:  Comex Gold/Silver Price Hit.

Briefly, the issue for the bullion banks who operate Comex vaults was that, as of Wednesday’s close, the amount of Feb gold contracts amounted to over 2.8 million ounces of gold.  The problem is that the Comex vault report showed just under 800k ozs of gold available for delivery.  If just half of the open gold positions held for delivery, it would cause a serious run on Comex gold and a serious price explosion higher.  So the bullion banks triggered what I call an open interest raid on the Comex.  This is an event which has occurred with monthly regularity for the 13+ years I’ve been trading the precious metals sector.

As it turns out, the Comex data on Friday confirms that an open interest raid occurred:   the banks were able to coerce 20,000 contracts to sell on Thursday by violently driving the price down early Thursday morning, triggering massive stop-loss selling of open positions by the hedge funds.  The Feb gold open interest going into Friday was 8,455 contracts, or 845k ounces.  That’s just about equal to the registered gold.

However, I also believe that the Fed/bullion banks are losing their ability to control the price of gold/silver other than for short periods of time.  This was confirmed as gold on Friday clawed back almost the entire amount of Thursday’s hit.  It’s evidence they are losing their ability to control the market with paper.  Historically, it used to take a few weeks to recover from an open interest liquidation raid.