From examining the roll data of gold futures I have found no evidence of gold price suppression. One of the most discussed subjects in the gold space is long-term gold price suppression on the COMEX futures market in New York. It’s an interesting theory because we know that in the past the United States has been active in “stabilizing” the gold price to make to dollar look stronger. But that was done openly in the 1960s and 1970s by selling physical gold. Is any entity still suppressing the gold price, and does it use the futures market?
A lot of the 'noise' from those that think gold is suppressed is that they do not understand why the bullion banks have short futures positions.
Gold leasing books are now (mostly) funded by balance sheet (cash) as central bank lending reduced significantly in recent years as the yield crashed so the risk/reward was no longer there.
To fund gold leasing where the bullion banks lend metal to customers, which add up to significant volumes, they buy OTC gold (loco London for instance) and cover this position by selling futures. The banks are square, they have no significant short (or long for that matter) as is constantly claimed by some. As this short position reaches expiry they need to roll it as they remain long the OTC for the leasing book. Clean and simple.
This was evidenced last year when the pandemic lockdowns initially hit the EFP market where the difference between the London OTC market and the COMEX futures widened to levels never thought imaginable. This was because whilst the banks were long the London effectively, they were short the COMEX, and the global stoppage in transportation put those shorts in position whereby, even if they wanted to, they could not deliver metal to New York. Market participants knew this and offers dried up faster than a puddle in the Sahara. Mark to Market 'losses' on the books for some bullion banks that first week as a result were quite daunting with some closing them out. Others knew this would be temporary and held on to see this 'loss' evaporate. The less educated in the market initially claimed this was a flight to quality (of the COMEX gold) but failed to understand that it was a lack of liquidity that caused this as those that could offer knew they could just sit back potentially and cash in as those that capitulated realized their losses.
The problem we have is that there are too many experts, and that is a loose use of that term, that seem to only see the COMEX gold contract as the price of gold alone, and not understand the whole eco-system of gold. The price of gold is interlinked between the Comex, the OTC market and all the other places like the Indian physical market, the Shanghai gold exchange and central banks activity for it to be manipulated by just one of the cogs in that wheel.
Tin-foil hats off, reality googles on for some I think.
That was indeed a fun period! What I found most satisfying about it was that yes - as the internet gold "analysts" always predicted COMEX pretty much broke down during that time: shorts could not deliver the gold. However ironically (and as one would expect) this led to massive premiums of paper over physical as short scrambled to rid themselves of the exposure! Not to paper contracts becoming worthless.
I would be most grateful if you could answer GATA's points below:
That is, the data does not show whether governments and central banks are selling gold contracts through brokers on the exchange.
If governments and central banks are selling gold futures, then gold price suppression is indeed government policy -- and there is much evidence that they are. For example:
1) At a hearing in U.S. District Court in Boston in November 2001 on GATA consultant Reg Howe's gold price manipulation lawsuit against the U.S. Treasury Department, Federal Reserve, Bank for International Settlements, and bullion banks that trade gold on the Comex, an assistant U.S. attorney declared that the U.S. government has the authority, under the Gold Reserve Act of 1934 and related statutes, to act on the gold price exactly as Howe's lawsuit complained:
2) Through its Central Bank Incentive Program, the operator of the New York Commodities Exchange, CME Group, gives governments and central banks special volume discounts for trading all futures contracts sold on the exchange, including gold contracts:
Such trading must be conducted through brokers approved by the exchange, which would provide camouflage for official interventions.
Would CME Group offer the discount program if it was never being used by governments and central banks?
3) The U.S. Commodity Futures Trading Commission, which regulates the New York Commodities Exchange, repeatedly has refused to say, even for a member of Congress, whether the commission has jurisdiction over manipulative futures trading undertaken by or at the behest of the U.S. government:
The commission's refusal to answer such a simple question about its jurisdiction is effectively confirmation that the U.S. government indeed is meddling in the gold futures market to defend the dollar and U.S. interest rates.
Analysis of futures market trading data doesn't tell much unless you also know the identities of the parties behind that trading. If governments and central banks are doing a big part of the selling in gold futures via intermediary brokers, the trading data alone won't reveal it. So Nieuwenhuijs' analysis here really doesn't address the price suppression issue. He's looking in the wrong place.
You are delusional if you believe the gold price is not suppressed in order to defend fiat currencies. You do not understand price action nor do you understand how these futures instruments should be trading afterhours. Take a look at 8/8/21. Someone mysteriously sells thousands of contracts on a Sunday night with hardly any volume. I don't know about you but when I'm selling large amounts of volume I am trying to get the best price in liquid trading hours , I wouldn't be making a market order to sell thousands of contracts to drive down the price and trigger every ones stop orders.
Newcomer here. Jan, good research/good questioning which is why I joined. While your article has interesting correlations, I am not convinced that gold is not manipulated on an ongoing basis. And that would be at the Central Bank level with the Fed as lead. My basis for this belief is that all most all fiat backed governments know that gold has the ability to ruin their financial system should enough trust be lost in that system. While there are other hard/productive assets people can, and will (AND ARE) move into, gold has the appeal of an asset that would be readily used as a medium of exchange once the dust settles, as it were.
Frankly, I don't think gold manipulation can be diagnosed by the average person, no matter how dogged they are in their investigation. Again, I think this price control is at such a high level that we are not privy to it. I know that may sound too simplistic for some, but I still believe it.
This price control of course does have limits. Should enough people resolve to buy physical gold and that were to continue, well then the price control scheme would eventually lose. Again, that is what the Central Banks want to prevent at all cost.
The price control of gold of course has limits on the downside. The controllers don't want to make it too cheap either. Russia and China, primarily are deemed adversaries (evil) by the US and western European not because they are evil but because they want a rightful presence on the world stage with the US and lesser western players. And with that rightful presence, they would obtain some of the spoils that clearly comes with a reserve currency designation. Russia and China have been building larger/large stock of gold within their countries for the day that they hope gold will be a part of any new reserve currency system. So the point is that ongoing manipulation also can't allow things to go far in the down direction as that would put gold on "sale".
Regarding the Reuters article on JP Morgan's conviction and penalty for spoofing PMs I have another take that might be considered. Of course, the spoofing was going on. It may have been beyond the "rules" of participation in the "system" or it may actually have been called out for the sole purpose of swaying skeptics by showing that, yes, minor manipulation was going on and we've nailed it. In other words, a false flag of sorts in hopes convince skeptics that the US government will not tolerate manipulation of commodity prices. I rather think this the real explanation. JPMorgan is a huge player in market manipulation (as is Goldman) on behalf of the government in many areas. Jamie Dimon is the go to mouthpiece for things the government wants people to hear. So I rather think that any enforcement like this that is publicized as this was has a deeper reason than what appears at superficial glance.
I am learning that in many cases with regards to all things economic, it is prudent/useful to look at "who benefits" from an action or policy as to accept the stated or most obvious reason. The ongoing and current demonization of Russia/Putin in American and western press is a perfect example; yet most Americans still fall for the press release version of events.
So again, very interesting research, but I am not convinced there is not ongoing price "control" of gold by the highest level players which includes all the "western" fiat economies and including Japan. But please don't let my (or other's) skepticism sway your future efforts on this or other topics.
I think you misunderstand the driving forces around future expiry. It’s true: at expiry both long and short positions need to be rolled.
The price effect depends on who has a stronger need to roll. Banks know that most speculators have an absolute need to roll as they are not equipped to take (or give) delivery.
Banks are advantage of this situation: when they are long and the shorts need to roll prices go up. When they are short prices go down.
You can’t derive from this whether the banks established their position with the intent to suppress prices or not.
Only the ones that are hedged in the spot market, let's say these are banks (market makers), have "less need" to roll than naked speculators. Because the "February - December spread" increased when December matured that means the banks were net short futures (while long
in the spot market = no price impact) and specs net long.
How can the naked specs (/crooks) suppress the price on the COMEX if they were net long futures?
And honestly - is there any other market which is similarly bound by psychological numbers? Like sure the SPX will bounce of any 100's number a bit. But precious metals - they are so obviously kept in certain ranges (like now below 2000) that it's clear there is very strong intent behind it. Not just some trades with superstition in round numbers. Silver is even worse in that regard - so often is a whole number a seemingly insurmountable barrier.
Overall just looking at intraday pricing it seems to me that the selling is more concerned about moving prices down to certain levels and triggering stops than selling positions at best prices. Huge dumps will always happen at the least liquid hours. Very typically for example gold will be bought in the morning in Europe - and be aggressively dumped at midday (after 4am EST) when the purchases are through.
You do get very high volume dumps on economic releases - far outstripping any reaction in other asset classes. Those in my view are done via wash sales.
And btw when I say aggressively dumped I don't think that's what's actually happens. I think the banks just move their quotes down in concert until the previous buyers dump. If you look at the details that's what happens. It starts going down on no volume. And then you can see the big stop loss chunks hitting the market.
I don't think that's true. Banks are very concentrated players in this market. They make both the futures and the physical markets. They know that specs need to roll and how large the likely deliveries will be. They themselves also need to roll - but they can use their knowledge to get the better deal anyway, even if they are net short. They are prepared to take some deliveries.
The big tell is that the front month future basis against spot has been way below fair value since march last year. And on average since 2008. Why is that? Even in the face of quickly rising prices. Banks make both the futures and the spot markets. Why don't they quote prices which reflect a realistic basis?
I think the reason is that an underpriced basis provides incentive to sell physical and buy futures. So just by misquoting these relative prices (triggering > 10k efp's from futures to physical last week) they cause total supply (physical + paper) to increase.
I also think the manipulation is quite evident just looking at intraday price action. Every day when the US comes online prices get smashed. You can look at half hour average returns and it's stunning how systematically bad they are from 8:30 to 10am. I used to think that was related to the pm fix at 10am. But when european and US summer time diverges for a couple weeks each year it's still 8:30 to 10am US time. I think this is done so gold looks terrible whenever potential investors look at it in the morning.
And it's quite common to see more purchases than sales in the paper market with concurrently decreasing basis while prices move down. So physical markets bid more than paper. Paper more bought than sold. Yet prices declining.
I've seen all this before - I used to short pump & dump penny stocks. You'd see the very same price action though mirrored to the upside. Like there'd be high volume sales as more of the fraud became apparent. And when the sales were done prices just levitated back up (this is done in that space mostly using wash sales between related parties).
So at its core I think it's making false markets. With a bit of wash trades added in. And intimidation at certain hours. And I do think banks are naked short.
Just think about it - after 2009 investors jumped into the commodities markets = futures markets. Open interest skyrocketed. What do you think the banks did? Eg in wheat - did they stock wheat storage to back the shorts they were selling? Did tons of wheat go to waste since they were just held for investment?
For a time commodity inflation did tick up. But they then figured out how to deal with it by shaking out investors with volatility and false prices and by determining the percentage of contracts actually likely to get delivered. The rest you can short against without much risk.
I'd argue the last 15 years would not have been possible without asset inflation bleeding into consumer inflation if the banks hadn't figured out a way to sterilize any price impact from long futures investors. There are a couple of papers which confirm that spec longs have no sustained price impact in futures markets - which contradicts the thesis that they are matched with physical longs.
I enjoyed this piece, Jan. Thanks for writing it. One obvious counterpoint to the gold suppression theory is this: if it were really a goal of CBs to suppress the gold price, they did a lousy job of it between 2001 and 2011. On the other hand, the work of Dimitry Speck, specifically his empirical work on intraday gold price movements, is instructive and points in the opposite direction. Look at chapters 6 and 7 in his Book, "The Gold Cartel." (Palgrave/Macmillan, 2013). He demonstrates, statistically, that over a 5-year period intraday prices during Comex trading hours were almost certainly affected negatively by ongoing intervention. He also pinpoints a precise date when that behavior commenced: August 5, 1993. I'd be curious to hear your (or anyone's) refutation of his data and conclusions.
BTW - I have a real question for you. Look at something like this: https://www.nber.org/system/files/working_papers/w19892/w19892.pdf. There are many others like that. Basically over the last decade investing in commodity futures by index investors has increased a lot but this has not affected prices.
How could that be true? Think about it: if the short side actually took the commodity off the market to hedge their exposure then certainly prices would have had to increase, right?
Here's how I explain it for myself: since investors are systematically long via index investments someone else (e.g. banks) needs to take the other side. What these players have figured out is that only very few market participants ever take delivery. So as soon as the price rises by more than they have established as fundamentally justified these market participants are happy to sell exposure without hedging themselves on the spot market, earning "storage costs" for free. That way commodities only rise in price via fundamentals on the spot market, not by specs piling in.
I think it might be similar with gold - whenever bullion banks sense that price exceeds what's implied by longer term spot demand/supply they are happy to write contracts since they know specs don't have staying power. And sometimes they help the spec exit process along a bit by pulling bids.
If index investors (futures backed ETFs) go long and the price drifts away from the physical reality then speculators (whoever they are) take the short side bringing the price back in line with fundamentals. This way ETFs can go long in whatever size they want while prices aren't much affected. The CFTC neatly tracks the positions of index traders:
"The Supplemental report includes 13 select agricultural commodity contracts for combined futures and options positions. Supplemental reports break down the reportable open interest positions into three trader classifications: non-commercial, commercial, and index traders." https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm
However, all (AFAIK) gold ETFs are physically backed, because gold is more of a "currency" than an industrial commodity.
Yeah that's what I'm talking about. I think the same applies to gold / silver futures as well - if there is interest in futures only (whether index or specific to gold) it will get sterilized out by bring prices down rather than warehousing metal.
Yeah I agree - I don't think there are futures based gold etfs. But there are commodity etfs tracking certain commodity indices which do include gold and are implemented using futures. And then there's a lot of speculative buying of futures. Both don't need to move prices based on the same train of thought as you outlined for soft commodities. That gold correlates with TIPS doesn't contradict this. Maybe physical gold demand does correlate with TIPS. Or maybe that's just the model the short players use when deciding how much to short at what price level.
It's also possible that the gold shorts are in fact fully hedged of course. But it's not necessarily the case.
One can imagine how this starts by just figuring out a way to avoid having tons of wasting wheat, corn, soybeans etc just because investors have become interested in investing in commodities. But as you get better at estimating what's due to investors and what's real demand you can make these trades more and more profitable.
And then in gold you have the reflexive property that people don't know how to value it - so they believe its worth what it sells for. From there it's only a small distance to periodically rinsing specs out by taking the bid down. It must be a fantastically profitable line of business for the bullion banks. If it does happen the way I described it.
My personal experience is that specs have to pay for the roll while commercials make the money rolling their contracts. Essentially specs have to roll while commercials are fine either way. Palladium for example is currently very spec short. You get a positive roll yield on the long side. Basically the front contract will get more expensive relative to the next contract during the yield period. And its opposite for the normal situation where commercials are short.
From that perspective commercials could still be short - and just roll using the their normal strategy knowing that specs won't take delivery.
Long term shorting doesn't make a whole lot of sense since the trend is up and long term shorts would pay up. But short term shorting is a different matter and in my view quite apparent in the intraday price action. Big traders just know that when everybody is in and excited but no more money is coming in you can club it down and people will sell on the way down.
I don't know any other asset which is as easy to short intraday as gold is. You won't get retraces or similar complications. When the time is ripe you'll just get a clean waterfall down for 1.5-2%.
I meant it slightly differently: during the 2 days or so where most of the roll happens there is a transient change in pricing between the front and the next contract. And the direction of that transient change depends on spec vs comms positioning. This is independent of the regular term spread.
Is that proof of anything or an argument? Of course there is a lot of "manipulation" (as I said, manipulation can be anything) out there, the question remains, is there evidence of long-term gold price suppression on the COMEX?
I can only read the first link in which the author mixes manipulation (proven in court, but done though spoofing that creates intraday up and down movements to scalp markets) with suppression. It doesn't fly.
When the bullion banks suddenly come in with hundreds of tonnes of unbacked short contracts at illiquid times, the falling price makes the stops go off for the tech funds - leveraged longs immediately forced to sell at any price. Thats how te bullion banks close out the shorts. And as for exceeding position-limits, don't make me laugh the CME has its blind eye firmly fixed to the keyhole
So, according to your analysis there are moments in which banks can magically buy long 100,000 contracts (roughly equals "hundreds of tonnes") without the price going up? And then they open new shorts (100,000 contracts) in the next active month, while the basis increases (see chart), and all this would happen during illiquid trading hours? Doesn't make sense to me.
Regarding your second point: The CEO of CME Group is Terry Duffy. In 2019 Duffy said gold should be trading at 5,000 dollars. If Duffy (CME) was complicit in suppressing the gold price, why would he say that? https://www.youtube.com/watch?v=enlEhlxuVwk
If the bullion banks sell large numbers of futures contracts at illiquid times to collapse the bid offer stack, the price is wherever they stop selling. They then buy back their contracts upto "target" price? With no significant liquidity, most can be bought back to reduce the size of the roll to manageable proportions. What am I not understanding?
If there is low liquidity (small order book) buying back those contracts gives a larger upward pressure on the price. Traders rather “cover” (unwind positions) in liquid markets.
What happens in these take-downs is that the trader on the short side buys any liquidity which gets triggered as price goes down. Imagine yourself as sole market maker in a hypothetical gold market. You know where people have their stops - where they will sell if prices get that low. During an illiquid period you can just take bid and ask down and buy the stops which get triggered on the way down. From having watched gold intraday tick for tick for long times I think that's mostly how its done.
This stuff happens in all markets these days. Any breakout will very likely result in prices coming back down to trigger any liquidity left behind. But in gold its extreme.
Newcomer here. Jan, good research/good questioning which is why I joined. While your article has interesting correlations, I am not convinced that gold is not manipulated on an ongoing basis. And that would be at the Central Bank level with the Fed as lead. My basis for this belief is that all most all fiat backed governments know that gold has the ability to ruin their financial system should enough trust be lost in that system. While there are other hard/productive assets people can, and will (AND ARE) move into, gold has the appeal of an asset that would be readily used as a medium of exchange once the dust settles, as it were.
Frankly, I don't think gold manipulation can be diagnosed by the average person, no matter how dogged they are in their investigation. Again, I think this price control is at such a high level that we are not privy to it. I know that may sound too simplistic for some, but I still believe it.
This price control of course does have limits. Should enough people resolve to buy physical gold and that were to continue, well then the price control scheme would eventually lose. Again, that is what the Central Banks want to prevent at all cost.
The price control of gold of course has limits on the downside. The controllers don't want to make it too cheap either. Russia and China, primarily are deemed adversaries (evil) by the US and western European not because they are evil but because they want a rightful presence on the world stage with the US and lesser western players. And with that rightful presence, they would obtain some of the spoils that clearly comes with a reserve currency designation. Russia and China have been building larger/large stock of gold within their countries for the day that they hope gold will be a part of any new reserve currency system. So the point is that ongoing manipulation also can't allow things to go far in the down direction as that would put gold on "sale".
Regarding the Reuters article on JP Morgan's conviction and penalty for spoofing PMs I have another take that might be considered. Of course, the spoofing was going on. It may have been beyond the "rules" of participation in the "system" or it may actually have been called out for the sole purpose of swaying skeptics by showing that, yes, minor manipulation was going on and we've nailed it. In other words, a false flag of sorts in hopes convince skeptics that the US government will not tolerate manipulation of commodity prices. I rather think this the real explanation. JPMorgan is a huge player in market manipulation (as is Goldman) on behalf of the government in many areas. Jamie Dimon is the go to mouthpiece for things the government wants people to hear. So I rather think that any enforcement like this that is publicized as this was has a deeper reason than what appears at superficial glance.
I am learning that in many cases with regards to all things economic, it is prudent/useful to look at "who benefits" from an action or policy as to accept the stated or most obvious reason. The ongoing and current demonization of Russia/Putin in American and western press is a perfect example; yet most Americans still fall for the press release version of events.
So again, very interesting research, but I am not convinced there is not ongoing price "control" of gold by the highest level players which includes all the "western" fiat economies and including Japan. But please don't let my (or other's) skepticism sway your future efforts on this or other topics.
Finally some sense Jan, a good explantaion.
A lot of the 'noise' from those that think gold is suppressed is that they do not understand why the bullion banks have short futures positions.
Gold leasing books are now (mostly) funded by balance sheet (cash) as central bank lending reduced significantly in recent years as the yield crashed so the risk/reward was no longer there.
To fund gold leasing where the bullion banks lend metal to customers, which add up to significant volumes, they buy OTC gold (loco London for instance) and cover this position by selling futures. The banks are square, they have no significant short (or long for that matter) as is constantly claimed by some. As this short position reaches expiry they need to roll it as they remain long the OTC for the leasing book. Clean and simple.
This was evidenced last year when the pandemic lockdowns initially hit the EFP market where the difference between the London OTC market and the COMEX futures widened to levels never thought imaginable. This was because whilst the banks were long the London effectively, they were short the COMEX, and the global stoppage in transportation put those shorts in position whereby, even if they wanted to, they could not deliver metal to New York. Market participants knew this and offers dried up faster than a puddle in the Sahara. Mark to Market 'losses' on the books for some bullion banks that first week as a result were quite daunting with some closing them out. Others knew this would be temporary and held on to see this 'loss' evaporate. The less educated in the market initially claimed this was a flight to quality (of the COMEX gold) but failed to understand that it was a lack of liquidity that caused this as those that could offer knew they could just sit back potentially and cash in as those that capitulated realized their losses.
The problem we have is that there are too many experts, and that is a loose use of that term, that seem to only see the COMEX gold contract as the price of gold alone, and not understand the whole eco-system of gold. The price of gold is interlinked between the Comex, the OTC market and all the other places like the Indian physical market, the Shanghai gold exchange and central banks activity for it to be manipulated by just one of the cogs in that wheel.
Tin-foil hats off, reality googles on for some I think.
Yes, I actually wrote about these topics: the 2020 dislocation https://thegoldobserver.substack.com/p/explaining-the-new-york-vs-london-gold-price-spread-and-why-it-persists and https://thegoldobserver.substack.com/p/why-physical-gold-delivery-on-the-comex-in-new-york-is-elevated and regarding the eco system https://thegoldobserver.substack.com/p/the-mechanics-of-the-global-gold
That was indeed a fun period! What I found most satisfying about it was that yes - as the internet gold "analysts" always predicted COMEX pretty much broke down during that time: shorts could not deliver the gold. However ironically (and as one would expect) this led to massive premiums of paper over physical as short scrambled to rid themselves of the exposure! Not to paper contracts becoming worthless.
I would be most grateful if you could answer GATA's points below:
That is, the data does not show whether governments and central banks are selling gold contracts through brokers on the exchange.
If governments and central banks are selling gold futures, then gold price suppression is indeed government policy -- and there is much evidence that they are. For example:
1) At a hearing in U.S. District Court in Boston in November 2001 on GATA consultant Reg Howe's gold price manipulation lawsuit against the U.S. Treasury Department, Federal Reserve, Bank for International Settlements, and bullion banks that trade gold on the Comex, an assistant U.S. attorney declared that the U.S. government has the authority, under the Gold Reserve Act of 1934 and related statutes, to act on the gold price exactly as Howe's lawsuit complained:
https://www.gata.org/node/4211
2) Through its Central Bank Incentive Program, the operator of the New York Commodities Exchange, CME Group, gives governments and central banks special volume discounts for trading all futures contracts sold on the exchange, including gold contracts:
https://www.gata.org/node/18925
Such trading must be conducted through brokers approved by the exchange, which would provide camouflage for official interventions.
Would CME Group offer the discount program if it was never being used by governments and central banks?
3) The U.S. Commodity Futures Trading Commission, which regulates the New York Commodities Exchange, repeatedly has refused to say, even for a member of Congress, whether the commission has jurisdiction over manipulative futures trading undertaken by or at the behest of the U.S. government:
https://www.gata.org/node/20089
The commission's refusal to answer such a simple question about its jurisdiction is effectively confirmation that the U.S. government indeed is meddling in the gold futures market to defend the dollar and U.S. interest rates.
Analysis of futures market trading data doesn't tell much unless you also know the identities of the parties behind that trading. If governments and central banks are doing a big part of the selling in gold futures via intermediary brokers, the trading data alone won't reveal it. So Nieuwenhuijs' analysis here really doesn't address the price suppression issue. He's looking in the wrong place.
Sure, no problem. My reply is what I also posted on twitter: Why should the identity of a trader change the interpretation of data?
There doesn't have to be suppression in the actual contracts , although, this to is TRUE . The suppression is done mainly through Billion Dollar selling. Only the Central Banks have this dollar amounts in the Gold or Silver markets. It is a silly argument that GOLD or Silver is NOT suppressed in the market. You could read this article if you are only concerned about the paper markets. https://www.reuters.com/article/jp-morgan-spoofing-penalty/jpmorgan-to-pay-920-million-for-manipulating-precious-metals-treasury-market-idUSKBN26K325 . Not to be ugly or mean but please READ more.
If you read my article you will find a link at the top the exact article you reference to. However, spoofing doesn’t suppress the price of gold.
You are delusional if you believe the gold price is not suppressed in order to defend fiat currencies. You do not understand price action nor do you understand how these futures instruments should be trading afterhours. Take a look at 8/8/21. Someone mysteriously sells thousands of contracts on a Sunday night with hardly any volume. I don't know about you but when I'm selling large amounts of volume I am trying to get the best price in liquid trading hours , I wouldn't be making a market order to sell thousands of contracts to drive down the price and trigger every ones stop orders.
Newcomer here. Jan, good research/good questioning which is why I joined. While your article has interesting correlations, I am not convinced that gold is not manipulated on an ongoing basis. And that would be at the Central Bank level with the Fed as lead. My basis for this belief is that all most all fiat backed governments know that gold has the ability to ruin their financial system should enough trust be lost in that system. While there are other hard/productive assets people can, and will (AND ARE) move into, gold has the appeal of an asset that would be readily used as a medium of exchange once the dust settles, as it were.
Frankly, I don't think gold manipulation can be diagnosed by the average person, no matter how dogged they are in their investigation. Again, I think this price control is at such a high level that we are not privy to it. I know that may sound too simplistic for some, but I still believe it.
This price control of course does have limits. Should enough people resolve to buy physical gold and that were to continue, well then the price control scheme would eventually lose. Again, that is what the Central Banks want to prevent at all cost.
The price control of gold of course has limits on the downside. The controllers don't want to make it too cheap either. Russia and China, primarily are deemed adversaries (evil) by the US and western European not because they are evil but because they want a rightful presence on the world stage with the US and lesser western players. And with that rightful presence, they would obtain some of the spoils that clearly comes with a reserve currency designation. Russia and China have been building larger/large stock of gold within their countries for the day that they hope gold will be a part of any new reserve currency system. So the point is that ongoing manipulation also can't allow things to go far in the down direction as that would put gold on "sale".
Regarding the Reuters article on JP Morgan's conviction and penalty for spoofing PMs I have another take that might be considered. Of course, the spoofing was going on. It may have been beyond the "rules" of participation in the "system" or it may actually have been called out for the sole purpose of swaying skeptics by showing that, yes, minor manipulation was going on and we've nailed it. In other words, a false flag of sorts in hopes convince skeptics that the US government will not tolerate manipulation of commodity prices. I rather think this the real explanation. JPMorgan is a huge player in market manipulation (as is Goldman) on behalf of the government in many areas. Jamie Dimon is the go to mouthpiece for things the government wants people to hear. So I rather think that any enforcement like this that is publicized as this was has a deeper reason than what appears at superficial glance.
I am learning that in many cases with regards to all things economic, it is prudent/useful to look at "who benefits" from an action or policy as to accept the stated or most obvious reason. The ongoing and current demonization of Russia/Putin in American and western press is a perfect example; yet most Americans still fall for the press release version of events.
So again, very interesting research, but I am not convinced there is not ongoing price "control" of gold by the highest level players which includes all the "western" fiat economies and including Japan. But please don't let my (or other's) skepticism sway your future efforts on this or other topics.
Thanks for the opportunity to comment.
I think you misunderstand the driving forces around future expiry. It’s true: at expiry both long and short positions need to be rolled.
The price effect depends on who has a stronger need to roll. Banks know that most speculators have an absolute need to roll as they are not equipped to take (or give) delivery.
Banks are advantage of this situation: when they are long and the shorts need to roll prices go up. When they are short prices go down.
You can’t derive from this whether the banks established their position with the intent to suppress prices or not.
Only the ones that are hedged in the spot market, let's say these are banks (market makers), have "less need" to roll than naked speculators. Because the "February - December spread" increased when December matured that means the banks were net short futures (while long
in the spot market = no price impact) and specs net long.
How can the naked specs (/crooks) suppress the price on the COMEX if they were net long futures?
And honestly - is there any other market which is similarly bound by psychological numbers? Like sure the SPX will bounce of any 100's number a bit. But precious metals - they are so obviously kept in certain ranges (like now below 2000) that it's clear there is very strong intent behind it. Not just some trades with superstition in round numbers. Silver is even worse in that regard - so often is a whole number a seemingly insurmountable barrier.
Overall just looking at intraday pricing it seems to me that the selling is more concerned about moving prices down to certain levels and triggering stops than selling positions at best prices. Huge dumps will always happen at the least liquid hours. Very typically for example gold will be bought in the morning in Europe - and be aggressively dumped at midday (after 4am EST) when the purchases are through.
You do get very high volume dumps on economic releases - far outstripping any reaction in other asset classes. Those in my view are done via wash sales.
And btw when I say aggressively dumped I don't think that's what's actually happens. I think the banks just move their quotes down in concert until the previous buyers dump. If you look at the details that's what happens. It starts going down on no volume. And then you can see the big stop loss chunks hitting the market.
Just one example: https://www.researchgate.net/publication/271275182_Effects_of_Index-Fund_Investing_on_Commodity_Futures_Prices
I don't think that's true. Banks are very concentrated players in this market. They make both the futures and the physical markets. They know that specs need to roll and how large the likely deliveries will be. They themselves also need to roll - but they can use their knowledge to get the better deal anyway, even if they are net short. They are prepared to take some deliveries.
The big tell is that the front month future basis against spot has been way below fair value since march last year. And on average since 2008. Why is that? Even in the face of quickly rising prices. Banks make both the futures and the spot markets. Why don't they quote prices which reflect a realistic basis?
I think the reason is that an underpriced basis provides incentive to sell physical and buy futures. So just by misquoting these relative prices (triggering > 10k efp's from futures to physical last week) they cause total supply (physical + paper) to increase.
I also think the manipulation is quite evident just looking at intraday price action. Every day when the US comes online prices get smashed. You can look at half hour average returns and it's stunning how systematically bad they are from 8:30 to 10am. I used to think that was related to the pm fix at 10am. But when european and US summer time diverges for a couple weeks each year it's still 8:30 to 10am US time. I think this is done so gold looks terrible whenever potential investors look at it in the morning.
And it's quite common to see more purchases than sales in the paper market with concurrently decreasing basis while prices move down. So physical markets bid more than paper. Paper more bought than sold. Yet prices declining.
I've seen all this before - I used to short pump & dump penny stocks. You'd see the very same price action though mirrored to the upside. Like there'd be high volume sales as more of the fraud became apparent. And when the sales were done prices just levitated back up (this is done in that space mostly using wash sales between related parties).
So at its core I think it's making false markets. With a bit of wash trades added in. And intimidation at certain hours. And I do think banks are naked short.
Just think about it - after 2009 investors jumped into the commodities markets = futures markets. Open interest skyrocketed. What do you think the banks did? Eg in wheat - did they stock wheat storage to back the shorts they were selling? Did tons of wheat go to waste since they were just held for investment?
For a time commodity inflation did tick up. But they then figured out how to deal with it by shaking out investors with volatility and false prices and by determining the percentage of contracts actually likely to get delivered. The rest you can short against without much risk.
I'd argue the last 15 years would not have been possible without asset inflation bleeding into consumer inflation if the banks hadn't figured out a way to sterilize any price impact from long futures investors. There are a couple of papers which confirm that spec longs have no sustained price impact in futures markets - which contradicts the thesis that they are matched with physical longs.
I enjoyed this piece, Jan. Thanks for writing it. One obvious counterpoint to the gold suppression theory is this: if it were really a goal of CBs to suppress the gold price, they did a lousy job of it between 2001 and 2011. On the other hand, the work of Dimitry Speck, specifically his empirical work on intraday gold price movements, is instructive and points in the opposite direction. Look at chapters 6 and 7 in his Book, "The Gold Cartel." (Palgrave/Macmillan, 2013). He demonstrates, statistically, that over a 5-year period intraday prices during Comex trading hours were almost certainly affected negatively by ongoing intervention. He also pinpoints a precise date when that behavior commenced: August 5, 1993. I'd be curious to hear your (or anyone's) refutation of his data and conclusions.
I have that book but never got through it. Different price action during market hours and off market hours is very common (because of "24/5" futures markets). It's the same in equity markets. It doesn't proof much in my view. https://twitter.com/JanGold_/status/1309452284510842881?s=20&t=H6u4sRXrNl6NHhUgKrlJDg
BTW - I have a real question for you. Look at something like this: https://www.nber.org/system/files/working_papers/w19892/w19892.pdf. There are many others like that. Basically over the last decade investing in commodity futures by index investors has increased a lot but this has not affected prices.
How could that be true? Think about it: if the short side actually took the commodity off the market to hedge their exposure then certainly prices would have had to increase, right?
Here's how I explain it for myself: since investors are systematically long via index investments someone else (e.g. banks) needs to take the other side. What these players have figured out is that only very few market participants ever take delivery. So as soon as the price rises by more than they have established as fundamentally justified these market participants are happy to sell exposure without hedging themselves on the spot market, earning "storage costs" for free. That way commodities only rise in price via fundamentals on the spot market, not by specs piling in.
I think it might be similar with gold - whenever bullion banks sense that price exceeds what's implied by longer term spot demand/supply they are happy to write contracts since they know specs don't have staying power. And sometimes they help the spec exit process along a bit by pulling bids.
If index investors (futures backed ETFs) go long and the price drifts away from the physical reality then speculators (whoever they are) take the short side bringing the price back in line with fundamentals. This way ETFs can go long in whatever size they want while prices aren't much affected. The CFTC neatly tracks the positions of index traders:
"The Supplemental report includes 13 select agricultural commodity contracts for combined futures and options positions. Supplemental reports break down the reportable open interest positions into three trader classifications: non-commercial, commercial, and index traders." https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm
However, all (AFAIK) gold ETFs are physically backed, because gold is more of a "currency" than an industrial commodity.
Yeah that's what I'm talking about. I think the same applies to gold / silver futures as well - if there is interest in futures only (whether index or specific to gold) it will get sterilized out by bring prices down rather than warehousing metal.
Yeah I agree - I don't think there are futures based gold etfs. But there are commodity etfs tracking certain commodity indices which do include gold and are implemented using futures. And then there's a lot of speculative buying of futures. Both don't need to move prices based on the same train of thought as you outlined for soft commodities. That gold correlates with TIPS doesn't contradict this. Maybe physical gold demand does correlate with TIPS. Or maybe that's just the model the short players use when deciding how much to short at what price level.
It's also possible that the gold shorts are in fact fully hedged of course. But it's not necessarily the case.
Physical supply and demand (no not the WGC data which is incomplete https://thegoldobserver.substack.com/p/the-essence-of-gold-supply-and-demand-dynamics) has to correlate with the tips yield because the price for physical gold is the same as the futures gold price.
One can imagine how this starts by just figuring out a way to avoid having tons of wasting wheat, corn, soybeans etc just because investors have become interested in investing in commodities. But as you get better at estimating what's due to investors and what's real demand you can make these trades more and more profitable.
And then in gold you have the reflexive property that people don't know how to value it - so they believe its worth what it sells for. From there it's only a small distance to periodically rinsing specs out by taking the bid down. It must be a fantastically profitable line of business for the bullion banks. If it does happen the way I described it.
https://cdn.substack.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F0dca4d77-6aba-48ed-9649-a15582a1ab9e_7099x4577.png
My personal experience is that specs have to pay for the roll while commercials make the money rolling their contracts. Essentially specs have to roll while commercials are fine either way. Palladium for example is currently very spec short. You get a positive roll yield on the long side. Basically the front contract will get more expensive relative to the next contract during the yield period. And its opposite for the normal situation where commercials are short.
From that perspective commercials could still be short - and just roll using the their normal strategy knowing that specs won't take delivery.
Long term shorting doesn't make a whole lot of sense since the trend is up and long term shorts would pay up. But short term shorting is a different matter and in my view quite apparent in the intraday price action. Big traders just know that when everybody is in and excited but no more money is coming in you can club it down and people will sell on the way down.
I don't know any other asset which is as easy to short intraday as gold is. You won't get retraces or similar complications. When the time is ripe you'll just get a clean waterfall down for 1.5-2%.
But gold is still correlated very tightly to the TIPS yield.
By the way, who pays for the roll depends on the futures curve. In contango the shorts benefit and vice versa.
I meant it slightly differently: during the 2 days or so where most of the roll happens there is a transient change in pricing between the front and the next contract. And the direction of that transient change depends on spec vs comms positioning. This is independent of the regular term spread.
"The futures markets are not manipulated; the futures markets are the manipulation." - Peter Warburton, Economist, author
Is that proof of anything or an argument? Of course there is a lot of "manipulation" (as I said, manipulation can be anything) out there, the question remains, is there evidence of long-term gold price suppression on the COMEX?
Yes. Gold is manipulated - Forbes: https://www.forbes.com/sites/greatspeculations/2019/05/20/yes-gold-is-being-manipulated-but-to-what-extent/?sh=678d23a52865
and it’s much bigger than you think https://investmentresearchdynamics.com/gold-manipulation-its-much-bigger-than-you-think/
I can only read the first link in which the author mixes manipulation (proven in court, but done though spoofing that creates intraday up and down movements to scalp markets) with suppression. It doesn't fly.
When the bullion banks suddenly come in with hundreds of tonnes of unbacked short contracts at illiquid times, the falling price makes the stops go off for the tech funds - leveraged longs immediately forced to sell at any price. Thats how te bullion banks close out the shorts. And as for exceeding position-limits, don't make me laugh the CME has its blind eye firmly fixed to the keyhole
So, according to your analysis there are moments in which banks can magically buy long 100,000 contracts (roughly equals "hundreds of tonnes") without the price going up? And then they open new shorts (100,000 contracts) in the next active month, while the basis increases (see chart), and all this would happen during illiquid trading hours? Doesn't make sense to me.
Regarding your second point: The CEO of CME Group is Terry Duffy. In 2019 Duffy said gold should be trading at 5,000 dollars. If Duffy (CME) was complicit in suppressing the gold price, why would he say that? https://www.youtube.com/watch?v=enlEhlxuVwk
If the bullion banks sell large numbers of futures contracts at illiquid times to collapse the bid offer stack, the price is wherever they stop selling. They then buy back their contracts upto "target" price? With no significant liquidity, most can be bought back to reduce the size of the roll to manageable proportions. What am I not understanding?
What do you mean with "buy back their contracts up to target price"? Close their expiring month short position?
Yes then there are fewer contract to roll on settlement date....
If there is low liquidity (small order book) buying back those contracts gives a larger upward pressure on the price. Traders rather “cover” (unwind positions) in liquid markets.
What happens in these take-downs is that the trader on the short side buys any liquidity which gets triggered as price goes down. Imagine yourself as sole market maker in a hypothetical gold market. You know where people have their stops - where they will sell if prices get that low. During an illiquid period you can just take bid and ask down and buy the stops which get triggered on the way down. From having watched gold intraday tick for tick for long times I think that's mostly how its done.
This stuff happens in all markets these days. Any breakout will very likely result in prices coming back down to trigger any liquidity left behind. But in gold its extreme.
Looking at the price you can see what you want to see. https://cdn.substack.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F0dca4d77-6aba-48ed-9649-a15582a1ab9e_7099x4577.png
Newcomer here. Jan, good research/good questioning which is why I joined. While your article has interesting correlations, I am not convinced that gold is not manipulated on an ongoing basis. And that would be at the Central Bank level with the Fed as lead. My basis for this belief is that all most all fiat backed governments know that gold has the ability to ruin their financial system should enough trust be lost in that system. While there are other hard/productive assets people can, and will (AND ARE) move into, gold has the appeal of an asset that would be readily used as a medium of exchange once the dust settles, as it were.
Frankly, I don't think gold manipulation can be diagnosed by the average person, no matter how dogged they are in their investigation. Again, I think this price control is at such a high level that we are not privy to it. I know that may sound too simplistic for some, but I still believe it.
This price control of course does have limits. Should enough people resolve to buy physical gold and that were to continue, well then the price control scheme would eventually lose. Again, that is what the Central Banks want to prevent at all cost.
The price control of gold of course has limits on the downside. The controllers don't want to make it too cheap either. Russia and China, primarily are deemed adversaries (evil) by the US and western European not because they are evil but because they want a rightful presence on the world stage with the US and lesser western players. And with that rightful presence, they would obtain some of the spoils that clearly comes with a reserve currency designation. Russia and China have been building larger/large stock of gold within their countries for the day that they hope gold will be a part of any new reserve currency system. So the point is that ongoing manipulation also can't allow things to go far in the down direction as that would put gold on "sale".
Regarding the Reuters article on JP Morgan's conviction and penalty for spoofing PMs I have another take that might be considered. Of course, the spoofing was going on. It may have been beyond the "rules" of participation in the "system" or it may actually have been called out for the sole purpose of swaying skeptics by showing that, yes, minor manipulation was going on and we've nailed it. In other words, a false flag of sorts in hopes convince skeptics that the US government will not tolerate manipulation of commodity prices. I rather think this the real explanation. JPMorgan is a huge player in market manipulation (as is Goldman) on behalf of the government in many areas. Jamie Dimon is the go to mouthpiece for things the government wants people to hear. So I rather think that any enforcement like this that is publicized as this was has a deeper reason than what appears at superficial glance.
I am learning that in many cases with regards to all things economic, it is prudent/useful to look at "who benefits" from an action or policy as to accept the stated or most obvious reason. The ongoing and current demonization of Russia/Putin in American and western press is a perfect example; yet most Americans still fall for the press release version of events.
So again, very interesting research, but I am not convinced there is not ongoing price "control" of gold by the highest level players which includes all the "western" fiat economies and including Japan. But please don't let my (or other's) skepticism sway your future efforts on this or other topics.
Thanks for the opportunity to comment.