Option Expiration Day For Precious Metals on the Comex

On Tuesday I wrote:

"We are going to have an option expiration on the Comex on this Thursday the 24th. I am not expecting it to be a big event, since October is a light contract, with the real attention and action being concentrated in December.

However, there are over one thousand puts at the 1125 strike, so the cynical me might call that good support.

If I were trying to skin the specs and holders of options with shallower pockets, I would take gold down to about 1120ish, suck in more puts and scare the calls out, and then take the price up and skin all those put holders at expiry."

Jesse, Cafe Americain June 22

And so we saw gold push lower, and then rally higher sharply afterwards, especially today.

Fait accompli.

This might be overlooked in the recent posts about the potential shortage of bullion that appears to be occurring, centered on the physical market in London.

Higher prices may provide a cure, but they need to be stable higher prices to free up bullion held in strong hands.

Don't think for a minute that this is a 'square' market now.   The Bucket Shop is in a virtual bullion lockdown and the paper trade is alive and well.

They can expand leverage freely given the craven silence of the regulators and professional courtesy amongst the looting class.

But they cannot create more physical bullion, and therein lies their limits.

Nick Laird: The London Gold Float Is Running Unusually Low

The gold pool is expressing some interesting dynamics that appear to be winding towards a denouement of sorts.

The current trajectory could change if the price is allowed to rise to clear the market, or any number of other seemingly improbable events.

The silver market is also acting very oddly.  I have not gotten a real handle on that, other than soaring premiums for coins and a lack of serioius buying in the US compared to the rest of the world. Similar to gold in some ways, although the central banks have no stockpiles of silver with which to rescue the bullion banks, again.

It is funny but few seem to notice these things, or even care, for whatever reasons that people do not notice something until it is too late to do anything meaningful.

I think that sometimes we can become 'victims of the ordinary.'  When the same thing happens again and again, we expect the same thing to happen next, and any change from this pattern seems almost unimaginable.

"My main focus is to try to bring into context the size of the "London Float" out of the shadows and into the light of day. The London Float being the working supply of gold available to meet the markets daily needs.

One must treat this with the consideration that much of the known gold shown is already owned & not available to meet the markets needs - not unless the owner wants to sell. The presumption being that the Central Banks reserves are not available to the market. They do lease/swap but under their own intent and of late the trend has been to not lend in risky markets but rather to claw back physical into direct ownership.

The years around 2000 were when the Mine Hedge Book was most active with approx 3200 tonnes being lent into the markets by the Central Banks.  By 2007 much of the Hedge Book had been closed out & they were under 1000 tonnes falling under 100 tonnes by 2013. From 2011 gold repatriations of Central Bank reserves started & since then have only grown.

So one presumption from this study is that over time the stance of the Central Banks has been to reduce their lending and bring their gold closer to home. Hence the presumption that the gold held in the Bank of England is mostly all there, unencumbered and released from leasing and swaps. Obviously some will still be lent out but the presumption is that the tonnages lent out are far smaller than in the past...

The UK Imports approx 602 tonnes per year & exports approx 388 tonnes per year (since 1999) according to the EuroStats database (thanks kindly Koos). However with the recent gold demand from Asia these statistics have changed dramatically. Since the start of 2011 the UK has imported 2982 tonnes & exported 3998 tonnes with net exports of 1016 tonnes seeing exports double their normal average to 800 tonnes per year.

This leaves the London Vaults with a FLOAT of between 1361 tonnes and 200 tonnes with the probability that it is closer to the lower number.  If it is closer to 200 tonnes then London does have a problem as a FLOAT of this size is not enough to cover their flows for 4 months."

Read the entire analysis with charts at The London Float.

Related: Shrinking Supply of Available Gold In London For World Demand

Gold Daily and Silver Weekly Charts - Blithely Deriding Into The Sunset: Du Calme, Du Calme, Adieu

“We are in a world of irredeemable paper money — a state of affairs unprecedented in history.”

John Exter

It may be unprecedented, but it certainly seems to be comfortable to the one percent and their courtiers, so that they are eager to let it run unfettered, and call it 'the new normal.'

There was significant intraday commentary regarding gold and silver to read if you have not done so already.

And I would especially urge you to have a look at the first of these.  It may seem complex at a glance, but much of that is support for the first few paragraphs.

Surprisingly Tight Supply of Available Gold in London Compared to Ongoing World Demand 
and
Physical Tightness in the Flow of Gold Is Reflected in the Price 'Not At All'

There was also some overnight commentary Premiums for Silver Coins Continue Running Much Higher than Spot

We might wonder when these fellows will let it go, and no longer attempt to control that intractable store of wealth that bears no counterparty risk.

The effort to quantify the disposition of the gold in the London Vaults was designed to try and calculate the depth of their discretionary supply.  The demand or 'burn rate' is fairly well known although probably a bit light because of the People's Bank of China's propensities to acquire bullion discreetly.

The objective is obviously to determine just how much float they have to support the demands in excess of scrap and mining and leasing.

And then the gold market 'gets real.'  

Nick thinks maybe four to six months.  I give them a sporting chance to make it through year end and then tumble into visible difficulties mid next year unless the market dynamics change dramatically or they relent on their interminable price capping.

Better to let the market clear than carry on with some obtuse extend and pretend program until the gold pool falls apart.  They do tend to do that over time.  Always.

I have little hope that they will do the right thing now, having failed to do what is just in so many other things before.  But perhaps cooler heads will prevail.

There was very little delivery at The Bucket Shop yesterday and only the usual slow bleed of bullion out of silver.   Gold is acting like it is in a lockdown .

Below there is large diagram diagram is John Exter's inverted pyramid of monetary risk.

For a balanced portfolio you may wish to include something from the narrower base of the pyramid.

Have a pleasant evening.


You will find the commentary that supports this next slide in the first link above or here.