Thursday, March 15, 2012

Bullion Banks are in Total Control Over Gold & Silver SPOT Price

Marshall Swing: The Daily Show

Well, this past COT period was not particularly interesting, at least from a price change point of view, BUT, today’s (Wednesday) price change is truly interesting and as of this moment silver is down -$1.41 on the day and gold is down -$36.30 on the day.  So what does all this mean today?  Not much, actually, and I will show you why!!  But you have to wait until next week’s COT…

Oh no you don’t, I will show you today!

If you look at the third chart in this article at the Feb 29th date, you will remember gold fell -$77.10 in moderate total volume of 239,522 and silver an astonishing -$2.56 in relatively low  total volume of 52698.

You might say “that’s a lot of traded gold and silver contracts, isn’t it?”  The answer is an unequivocal NO.

Look at the second chart in this article and it shows the total volume, the Most Active Month volume (where the daily spot price is always determined), and then way down there at the bottom it shows you the positive or negative change for Open Interest that was traded on each day in the Most Active Month.  Keep in mind March 10th and 11th are weekend days and meaningless as the market is not open on those days but my Excel chart adds the days in anyway.  My Excel chart is created from a database, not me just entering the numbers into it.

 What the second chart reveals is the actual Open Interest traded in gold and silver is about 1-5% on any given day of the total volume of the Most Active Month volume.

Did you realize that so few Open Interest contracts traded for those days determine the closing price for any given day?  Probably about 1% or less of silver stackers know this truth.  Now all the Doc’s readers know!

So what about all that total volume??  Well, about 95%+ of all that volume is just day traders and High Frequency Traders trying to make a profit on that day before closing.  They virtually all close their contracts prior to closing of the COMEX at 6PM EST.

Let’s go to the first chart and look at March 6th

On that day, we see that the gold Most Active Month lost -7539 contracts and the price dropped -$31.80.  On March 7th, the Most Active Month lost -9773 contracts and the price gained +$11.80.  What primarily happened on those dates is the Bullion Banks and all other players rolled contracts to the 2nd Most Active Month but on March 6th the price dropped significantly, and on March 7th the price rose moderately.  So you ask “how in the heck did that happen?”  Well, some combination of longs and shorts being rolled to mostly the 2nd Most Active Month accomplished that feat.  You have to remember that contracts have to be added to the later futures month because there is always a price war going on there and it is primarily a current war fought over options.  If the Bullion Banks allowed price to move up significantly in those later months then they would get killed in Options trading.  They are too smart for that.  I am confident the Bullion Banks have computer algorithms that tell the nasty Morgue traders exactly how many contracts and at what price to buy or sell on any given day.

The next logical question is how can anybody win this war with the Bullion Banks.  There are a couple of ways, one much harder that the first:

1.       Stackers just keep stacking on all the price dips or when you think a bottom has set in and it is time to buy.  Eventually, COMEX physical inventory will be depleted and the COMEX will no longer determine spot price since they will, eventually, be unable to get inventory from mining producers.  In effect, there will be a squeeze on physical and longs demanding delivery on the COMEX will have a default on their hands then the whole house of cards comes tumbling down on the Morgue and HSBC.

2.      You somehow learn to determine what the Bullion Banks are going to do as far as raising spot price or lowering spot price.  That’s a tough one!  Almost impossible…

I maintain that the Bullion Banks are in total control over where the spot price is going.  They have such HUGE Open Interest positions that they are able to allow price to rise and fall at will.  It is only those traders who determine what their next move is that make money in the gold and silver futures market.  It is all a game about anticipation and sometimes those anticipations are profitable and sometimes they are not.  Only play in the paper markets if you are prepared to lose and keep those stops close so you do not lose your shirt!  Anything else is foolish.

A final comment on price determination.  Let’s go to yesterday’s results, the last day of the soon to be reported COT (on Friday).  We see that -2478 contracts left the Most Active Month.  So some combination of longs and shorts, mostly rolling over to the other futures months, determined that price was going to fall -$5.60 in gold and silver rose almost $+0.17 with its  Most Active Month losing -396 contracts. 

If you check out this past week’s COT summary at  you will see that as of last Friday’s COT the Bullion Banks had absolutely HUGE long and short Open Interest positions.

If you combine the Large and Small Speculators, then you see who holds what Open Interest (contracts that are not sold before the day’s closing) and how HUMONGOUS the war is for the daily spot price as well as the spot price in the next few most active months.  Hundreds of thousands of Open Interest contract positions!!!

Despite all that it is only the sold or bought, longs or shorts, that do not close on each day that are the final determinations of the daily spot price.

So, why don’t the day traders and High Frequency Traders keep their Open Interest positions past the daily close?  Because they are expert (or not so expert) in making money off the spot price fluctuations during the trading day.

Now, one more concept…  Let’s suppose that all the Bullion Banks and Speculators do not buy or sell a single contract in a trading day.  At the beginning of the trading day spot price for gold is $1700.  Then it would be the day traders and HFTers that determine the spot price during the trading day BUT when they all sell out before the daily closing then the spot price would be EXACTLY where they found it at the beginning of the day!  Though the spot price during the day may have gone up $100, and gone down $200, once the day traders and HFTers have left the scene before closing the spot price would return exactly to $1700.

Maybe total volume was 400,000 during that day?  At the end of the day, it is a little simple sum of a fraction of shorts and longs Open Interest that determines what the spot price is at closing.

And that, my friends, is how massive volume has very little or no effect on determining spot price, except for the psychology of the Bullion Banks and the Large and Small Speculators watching the action.

Look at the third chart again for the gold and silver action on Feb 29th.  We see that the Most Active Month in gold lost -17991 contracts and dropped $-77.10.  Silver lost a minor -1163 contracts but lost a whopping $-2.56 !!!

Why did it take so little for silver to go down so much?

One word.  FEAR.  Fear from seeing a tremendous drop in gold in a minute or two.  So a bunch of silver longs followed and got out very quickly and it only took the Morgue a few well placed shorts to drop price like a rock.  It was no more than an expert sigh for them in silver.

Until next week!

Happy stacking…