Gold/Silver Manipulation Over in 30 Days?

If you’ve been a precious metals investor for more than six months you’ve heard about the rampant price manipulation on COMEX. (COMEX sets the cash price for gold and silver through its daily futures and options trading activity.)

Many of us have been waiting for the illegal manipulation (run primarily by Bear Stearns until March 2008, then JPMorgan Chase since then) to end for over two years.

Adrian Douglas thinks it may be over in as little as 30 days.

At lemetropolecafe.com he writes (edited for length, link):

BIG MONEY MOVING INTO COMEX GOLD & SILVER CALL OPTIONS

In November 2005 when gold was trading about $450 I predicted the mega-move in gold up to $720/oz by noticing a very large build-up of call options in the HUI component shares. [link]

In August 2007 I identified a massive Gold call option build-up in the COMEX DEC 2007 contract and predicted a big gold move. [link] Gold was trading at $660/oz at the time and ran up to over $1000/oz by March 2008.

It just recently came to my attention from two different confidential sources that JPMorgan and Goldman Sachs have been buying large amounts of Calls in gold and silver. This made me put on my gumshoes and take a serious poke around the COMEX option open interest once again.

Figure 1 shows the cumulative Open Interest across all strike prices for the COMEX Gold Call positions and the Put positions for the JUN 09 options.

comex-au-oi-june-2009
Figure 1

The ratio of Calls to Puts is 1.81 so Bulls outnumber Bears dramatically. What is also remarkable is the amount of open interest. For example, 100,000 contracts would be in-the-money if the gold price runs to $1,250/oz in the next 30 days. This is an astounding amount of option OI considering the open interest in all the futures contracts stands at only 345,000 contracts!

Let’s take a look at Figure 2 which is for DEC 2009.

comex-au-oi-dec-2009
Figure 2

The bets by bulls outnumber those by the bears by a 2.3 to 1 ratio which is even more bullish than for JUN 2009. The Total Call option interest is 113,663 contracts which is very similar to JUN 09. Furthermore if gold is trading at around $1600 by DEC then 100,000 contracts will be in the money!

I consider option players highly sophisticated speculators.
Such large bets are likely being made by some large money interests who are buying out of the money options BEFORE going into the futures market. Buying long futures in large volumes will rapidly drive up the gold price but the massive open interest in the Call Options then allow access to much more futures contracts at the same price by exercising the options and then perhaps taking delivery of the gold. This is bolstered by sources revealing that JPM and GS are buying in quantity. So on the part of JPM this is likely a ploy to try to cover a chunk of their massive short position.

Let’s now look at silver.
Figure 3 shows the cumulative Open Interest across all strike prices for the COMEX Silver Call positions and the Put positions for the JUL 09 options. The ratio of Calls to Puts is 1.80 so Bulls outnumber Bears by 80%. What is also remarkable is the amount of open interest. For example, 18,800 contracts would be in-the-money if the silver price runs to $25/oz in the next 60 days. This is an extraordinary amount of option OI considering the open interest in all the futures contracts stands at only 94,000 contracts!

comex-ag-oi-june-2009
Figure 3

Figure 4 shows the cumulative Open Interest across all strike prices for the COMEX Silver Call positions and the Put positions for the DEC 09 options. The ratio of Calls to Puts is 1.68 so Bulls outnumber Bears by 68%. Again the total Open Interest in Calls is high at almost 25,000 contracts when the Open Interest in all futures currently stands at 94,000 contracts.

 comex-ag-oi-dec-2009
Figure 4

I conclude that smart money is being placed for a massive rise in the gold price in the next 30 days and silver in the next 60 days (which probably means within 30 days for both metals) and again by December.

Only sophisticated traders tend to be in the precious metals option market so when there is a huge build up betting on a particular direction that is typically a directional indicator as I have shown was the case for the last two big moves in the precious metal bull.

The flat contango in gold and silver suggests there is a shortage developing of precious metals for delivery. We know that two large banks hold almost 100% of the commercial net short position. They need desperately to cover their exposure if the market is about to make a big move.

It looks as if that is precisely what is happening.

Adrian Douglas
April 29, 2009

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18 Responses

  1. I am equally convinced it is understood it can only go on for so long. When the insiders know the game is up a tsunami of paper will head for gold

  2. Hello Scott and Fellow Posters,

    Silver just went vertical past $15.00.
    Thar she blows!

    • If possible i would buy as much gold or silver as you can. By doing research on other sites, these PM’s will just continue to rise. They say not to hold US Dollars, but you must for now. Does anyone have an opinion as to what percentage of your dollar holdings should be in PM’s?

      • Hello John,

        David Morgan, (one of the Silver “Gurus”) had previously
        said 10% of your nest egg should be in P.M.’s.
        However, in the last 6 to 9 months, he changed that to
        30% of the fund that you don’t need for day to day living.

  3. codematrix,why do you think canada has anything to say about the amero? if the us wants amero,the canadians have to obey.

    you know,the us has the first right to use canadian oil,then canada. you did`nt know? check it out!

  4. I have long believed the big boys have suppressed the gold price. I am equally convinced it is understood it can only go on for so long. When the insiders know the game is up a tsunami of paper will head for gold. How exiting, is this it?

    Philip appears to know what he is talking about but I dont understand any of it.

    As is reported a very small percentage of fiat money going to gold would have a dramatic affect.Dream on.

    All the created cash the banks have been given and are sitting on could go for gold, with gold at $5000 + they might end up quite solvent thank you very much. Mind you what will $5000 buy in a couple of years?

    No wonder China etc are getting hot under the collar

  5. […] celor de la E2020. Ei bine, se pare ca si in aceasta privinta avem de-a face cu o bomba cu ceas: Gold/Silver Manipulation Over in 30 Days? […]

  6. What happen yes gold takes off in price $1500 an the goverment says We will open the doors of fort knoxs if the prices rises any further. Just the statement alone make the price fall. With out selling one ounce of gold.

    • Fall, but for how long? Unless your outlook is restricted to the very immediate future (days or weeks, or even months), any fall is not significant.
      Gold is up 300 per cent in the last 8 years, and the gov’t has not threatened to ‘open the doors of Fort Knox” once. That was tried in the late ’60s and early ’70s and they would have been cleaned out but for the fact they slammed the door in time. Nevertheless, 13000 tons got taken out in no time flat, leaving the 6800 tons they supposedly have now. They may encourage everyone else to sell their gold, but the U.S. has not sold one ounce for years.
      They may have ‘leased’ it to GS or some other characters, thereby causing it to be in ‘deep storage’, probably never to return, but they haven’t threatened to sell it. Everybody would call their bluff if they did.
      Also, if the market did take a dip, most specs would consider it a temporary buying opportunity not to occur again for a long long time…the gold would be gone in days, or weeks at the most. Remember Britain sold 400 tons, and it marked a new bottom, not seen since.

  7. I liked the Adrian’s enthusiasm…but I don’t think he understands option OI reporting. The big open interest in the last thirty days as illustrated is probably option writing (selling) of calls by the institutions considering they are already holding the underlying metal which limits their risk. I don’t think it is ‘call buying’ as he implies. ‘Open interest’ figures from the exchange will never disclose whether the option holders have bought long an option contract or sold (written) a contract with the market maker. Considering the out-of-the-money calls at the $1250 strike are cheap with 30 days to go AND the banks control the metal price (for now), these options will remain out-of the-money and expire worthless SO the banks will be able to keep the premium they took in when they sold the options. Its basically a covered call strategy and is more desirable with calls than puts since the premium on calls is higher in a market with an upward bias. (Hence, the current skewed call / put ratio.) Its just another way the banks can make money while they keep the metal trading in a range. In fact, the option figures he points out make me believe we will remain in this range for a while.

  8. China is in the market. They have now exceeded the gold production of South Africa and they are buying Gold as well. They are up to 1000 tonnes (double the figure of a few months ago). That is only 1.6% of their gold and foreign exchange reserves. (if you believe the number, the equivalent percentage for the US is 70%). I think they were going to wait until they had accumulated more metal, but they have just figured that “quantitative easing” is the trump card the US has which makes them irrelevant.

    Unlike other debt crises (like the UK one in the 60ies when the Labour government had to go cap in hand to the IMF and the “gnomes of Zurich) the US has managed to borrow all this money in its OWN CURRENCY! So if it gets into trouble selling T bonds to fund the massive deficit, it doesn’t need to go to the Chinese. It just prints money and buys its own bonds. This is intolerable to the Chinese, especially as the US has flooded the World with its paper while keeping the metal in its (and the IMFs) vaults. China will now accumulate as much metal as they can. Comex will be bailed out by the government and the price of Chinese support for the TBond market will be a transfer of a significant component of US and IMF gold to the Chinese. Then they will make the Yuan the World’s reserve currency, backed by gold. This isn’t happening overnight. But it will happen IMHO.

    Fanciful? Lets see boys and girls….

  9. Well, Stephanie, this is true. However, it is my opinion that the only way America can pay off its debts is to intentionally lower the value of its dollar. What better way to begin this process than to let gold loose and the dollar fall. That appears to be what is happening now. It may be a false alarm, but when the big boys (insiders) go long, long, long, something big is happening!

    • Bruce you are on the right track with your thinking. Here is what I think will happen. The US dollar will devalue further into 09/10 which will allow precious metals to skyrocket. Then when no one wants the dollar anymore it will be replaced with the Amero in late 2012.

      • The Amero won’t happen because the CND$ will be too strong as a lot of investors see the the CND$ holding up strong because of their strong banking system and their rich in hard assets like gold, silver and oil.

        The Canadian gov’t can never make it happen (the Amero) as gov’ts in Canada for the last decade, have always been minority. Meaning that can’t do much without being voted out due to lack of confidence. We have a 5 party system and because of this, minority gov’ts are here stay for a long time. It’s funny, though, all voters that I know in Canada, share their votes with each other to ensure that a minority gov’t is always picked. It doesn’t make gov’t work that well, but that’s why we like it. Because they can’t do much to upset the status quo.

  10. What makes you think this will happen? As long the Comex can change the rules against the players and paper over the damage, it will be business as usual. It hasn’t ended for over two years since JPM picked up the gun BS dropped, so why would it end now?

    • Stephanie,
      No one can predict the future with certainty. However, there is a war going on right now involving gold, bonds, and the dollar. It is true that if the only item being manipulated were gold, the manipulation would be simple. The bond yields are rising and the dollar is dropping. If the dollar drops significantly and bonds are no longer safe, money will move to gold. It only takes a tiny percentage of this safe haven money moving to gold to effect a very large change in the price. In other words there is a tipping point when manipulation will become almost impossible. Add to this the physical gold shortages, more people taking delivery off the Comex, and last but not least the fact that a devalued dollar may be Americas only way out of this fiasco, and at some point gold looks like a good investment. That is what the data above is telling you.

      • What you must understand is that the vast majority of investors do not have a precious metals perspective, never mind personal experience with it. They DON’T know that anything paper is worthless, because it can be manipulated and printed at will.

        They don’t have the historical perspective of Nixon’s taking us off the gold standard at the international window on August 15, 1971 as the final step in the fiat national currency experiment, and that this 38-year experiment has failed badly, resulting in people going, “Oh, that didn’t go too well. I think I’m going to go back here (to gold/silver).” This is an experiment coming to an end. People have no idea why we had gold/silver in the first place for thousands of years, and they’re about to find out where there is NOTHING paper to hide in. NOTHING. We can’t be trusted as a species, period. We have to have financial restrain to keep from pursuing the ultimate human dream – to make and have anything we want simply by thinking of it, without having to put physical effort into it.

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