Wednesday, November 4, 2009

Could gold shorts be heading toward the exits?

Previous blog entries detail the price suppression schemes of bullion banks, offering the Commitment of Traders (COT) and Bank Participation Reports as evidence of large, concentrated, and naked short positions of a few US banks. In fact, the fact that so few banks hold such large net short positions is by definition, price manipulation.

Let's look at the US Treasury's Office of the Comptroller's own website for additional supportive evidence.

Note Quarter 3, 2008 data on Bank Trading and Derivatives Activities. The sheer size of derivatives trading should scare readers enough, but let's just focus on gold derivative contracts on page 30:

We see JPMorgan had $71,180,000,000 in notional value of gold contracts of less than 1 year expiration, and HSBC had $22,834,000,000 of gold contracts with less than 1 year expiration, which represents approximately 70 million and 20 million ounces of gold, respectively, for delivery within a one-year time period. Did JPMorgan and HSBC have this much gold in their vaults?

Almost a year later, we can examine Quarter 2, 2009 data, on page 30:
JPMorgan had $57,922,000,000 of gold contracts to deliver. HSBC no longer had any gold derivative contracts.

Could this be a sign that bullion banks are slowly exiting their short positions, i.e. covering their consistently money-losing positions? And could this be why gold has continued to advance in price recently?

Only time will tell, but when awareness of the price manipulation of gold and silver becomes more pervasive, and the shortage of physical inventory becomes more acute due to said price suppression (when prices are artificially set too low and producers have no incentive to explore and mine for new resources, a supply shortage develops), a "fail to deliver" will turn a gently-sloping uptrend in prices into a sharp spike upward.

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