28 July 2015

Gold Daily and Silver Weekly Charts - Option Expiry - Leverage 117:1 at The Bucket Shop

"Half of the harm that is done in this world is due to people who want to feel important. They don't mean to do harm. But the harm does not interest them.  Or they do not see it, or they justify it because they are absorbed in the endless struggle to think well of themselves."

T.S. Eliot

As you may recall we had the August option expiration for the precious metals at The Bucket Shop today.
The call options at the 1100 level and above expired worthlessly according to the preliminary report from today.  I have circled those in red below.  As you can see from the prior day open interest, a goodly chunk fell by the wayside.
The second chart shows the distribution of volume for both calls and puts for August gold.
As you may have noticed in the warehouse report from yesterday, a rather large chunk of bullion in the JP Morgan warehouse was moved from registered (deliverable) to eligible (in storage not for delivery).   This took what I call the 'claims per ounce' up to the rather high level of 117:1.
This may be just a tease since there is quite a bit of gold laying about, but not deliverable at these prices, so I won't be getting too excited just yet.  I might have been more impressed if open interest had soared, or if some gold had actually exited the warehouse, rather than JPM just playing the old switcheroo with about 105,000 ounces of bullion that is still there.
But the gold crowd is hard up for good news, so let's make a big deal about it for a day or two.
I am keying off gold here, since silver seems to be along for the ride.  It may well lead the way at some point as I have noted, but not yet.
After the usual price charts I show the current levels of gold and silver bullion in the warehouses.
We may expect a little punch to the holders of new contracts compliment of the expiration, but most of that work in skinning the option players and knocking down the open interest seems to have been done.  As a side note, rather than playing at options on the paper prices at the Comex, you might find buying lottery tickets to be about the same odds and more satisfying.  At least it will get you out of the house or office.

Also I wanted to add a comment with regard to all these fellows who are saying that interest rates rising can be good for gold.  They tend to like to look back at the 1970's, which I remember all too well.   Let me remind you that correlation is not causation.  The reason rates were rising back then was that inflation had clearly reared its ugly head, and the Fed was grappling with monetary mischief and a gas price shock (with rationing) that had been delivered by the newly formed OPEC.

In this current case although there is inflation and it is being grossly understated, the rate increases have little to do with it, and everything to do with a Fed that is gazing deeply into the navel of their own policy errors, and trying to get a little maneuvering room off that zero bound before they crush the economy again with another financial crisis.

I do think gold will get some serious legs sometime in the not too distant future, but it will be driven by events outside of the US, which may or may not even involve the dollar.  This long gold pool manipulation of the price has done serious damage to supply without affecting non-US demand.  This is a formula for the mother of all short squeezes at some point when the pooling operation falls apart.  What triggers that may or may not involve a real inflation in the dollar.
All these markets are mere constructions now.   It is not just the government and the Fed by a long shot, although some romantics think that this is the case, and that if only we could eliminate the government, the god of the markets would make all of us good boys and girls, honest and self-effacing.  Because people, especially well-educated businesspeople, are naturally superior, rational angels who are needed to tell everyone else how to live, and to be compensated exceptionally well for their troubles.
As if.
There is no doubt that the corrupting influence of easy money has seeped into most if not all aspects of the developed Western countries, and that this is the end result of a long process with its roots in the 1970's at least.  
Reform is needed badly to cure the infection in the body politic.   But most of the prescriptions we have been seeing are coming out of the heart of darkness that is at the root of this, and would make the situation only worse.  And that is the unbridled greed of powerfully driven sociopaths and narcissists, and their troops of suppliers and camp followers. 
The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.
Have a pleasant evening.