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Gold and Silver Price Manipulation Efforts Failed This Week by Patrick Heller
June 2 , 2010  

Gold and Silver Price Manipulation Efforts Failed This Week
By Patrick Heller

Again I remind you that the price of gold is actually a report card on the value of the US dollar, and the American government and economy. A rising gold price indicates growing mistrust in the safety and stability of the dollar, falling confidence in the competence of the US government, and heightened fears about the strength of the private financial sector.

Such concerns were certainly not allayed when it was recently widely reported that, for the first time in history, the majority of Americans now depend on payments from government as their "income" rather than obtaining their sustenance from the private sector.

Because of this inverse relationship between the price of gold and public confidence in the value of the dollar, the US government can derive huge benefits if gold's price is suppressed. Among the benefits are lower interest costs paid on Treasury debt and lower payments on entitlement programs tied to the official inflation rate.

As federal government documents have been declassified and released to the public, it has been confirmed that the US government has intervened to manipulate gold prices starting as early as the end of World War I. In a letter to the Gold Anti-Trust Action Committee, Inc. (GATA) dated September 17, 2009, Federal Reserve Bank governor Kevin M. Warsh confirmed that the Fed has gold swap arrangements in place with other central banks, one of the means by which gold prices can be manipulated.

The tactics used to suppress gold prices have long become so blatant that professionals in the gold commodity trading pits can easily identify the times when prices are being manipulated.
One event where gold prices are regularly suppressed is at the monthly expiration of gold and silver option contracts. There are two different expiration dates each month. Normally, the COMEX options expire on a Tuesday followed the next day by the expiration of Over The Counter (OTC) options contracts. The larger options market is on the COMEX, though there are ten to fifteen banks and brokerages in New York, London, and Zurich that make markets in the OTC contracts.

Up until they expire, call options give the owners the right to demand delivery of the gold or silver at the contract's strike price. Should the price of gold rise above that level (referred to as being "in the money"), owners of call options can pay the strike price and other expenses and demand delivery of the physical gold from the party who sold them the contracts. Should this occur, that would squeeze gold supplies as the gold inventories on the COMEX are only sufficient to cover a small percentage of outstanding contracts. A supply squeeze likely would have the impact of pushing up prices.

The COMEX options expired this week on Tuesday. As I had predicted last week, the prices of gold and silver were suppressed below the strike prices where there were the largest number of call options-gold at $1,200 and silver at $18.00.
The pattern for the past several months has been for gold and silver prices to be suppressed until after the OTC options expired upon the close of the COMEX the next day. Once the monthly options have expired, the pattern has been for a quick recovery in both gold and silver prices.

That is not what happened this week. The first part of the manipulation to keep gold below $1,200 and silver under $18 through Tuesday's COMEX close was successful. However, almost as soon as the COMEX closed, gold and silver prices climbed above those levels.

On Wednesday, it looks like the US government, which largely acts through its US and foreign trading partners, was unable to push down gold and silver prices below the critical $1,200 and $18 at the COMEX close! Where this manipulation tactic has worked for many months in a row, this time the surge in demand for physical gold and silver overcame the resistance.
The failure this week of these manipulation efforts is a huge signal that we are closer to the day when the floodgates will give way and we see gold and silver prices surging more quickly and by greater percentages than we have seen in decades. Once again, I recommend that you not wait to protect your assets with some physical gold and silver. Most forms of bullion-priced physical gold and silver are still readily available at attractive premiums. I don't know how long I will be able to keep saying so.

Crimex Supply Update
by Greg Maurer
June 2, 2010


Harvey Organ's - The Daily Gold (see link in side column) released updated June Gold delivery numbers today. The Gold warehouses at the CRIMEX may be in far worse shape than suggested in my post yesterday:

There were 665 delivery notices issued in the JUN gold contract. The JUN gold delivery notice total for the month is 18,230 notices or 1,8230,000 ozs. (The Comex report on Friday apparently was not a typo there is truly a massive amount of OI standing for delivery!). Deutsche Bank issued none and stopped 46, JPM issued 66 and stopped 297, Barclays issued 408 and stopped none, while BNS issued 0 and stopped 17.

Now Ladies and Gentlemen, I can put the puzzle together for you.

On Friday, the OI announced at the conclusion of trading was 1.3 million oz of gold standing. The only thing left out was options exercised. These extremely smart players receive a futures contract and then they make a decision as to stand or roll to a future contract. Generally if you exercise an option you stand for delivery.

Also, you will recall that gold OI dropped by a massive 24,000 contracts. Most commentators thought it was massive liquidation. I did not buy this as demand for gold is going through the roof.

So why would intelligent traders cash in the newfound gains in gold. I thought that maybe the longs were offered a premium and roll to the next big month of August.

However the volume was just not there.
I had a lot of trouble figuring out the data.
Now I know what happened:
The big drop in OI in June was due to the massive standing of longs for physical gold:


1. The Friday OI of 13,000 contracts or 1.3 million
2. The exercise of options by gold holders. They were not fooled by the lowering of the gold price by the cartel banks...and then the subsequent loss of 24000 OI gold contracts due to the fact that these guys stood for and received their delivery slips. Only the almighty will know if these delivery slips have real gold in them or they are just a piece of paper with no gold behind them.
Thus so far, 18,230 contracts of gold have been served upon. If this is not a typo then this is a massive amount and my bet is that this will surely bust the Comex.

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This is not all the story:

There are 6497 contracts still remaining to be served or 650,000 oz of gold:

The open interest in JUN gold is 6,497 contracts or 0.65 Mozs.

Thus total amt of gold standing for June is 650,000 oz (left to be served) + 1.823 million oz (already served) + 204,000 oz from options exercised in May = 2,677,000 oz of gold.

Adrian Douglas comments on the deliveries with respect to gold:

The open interest in JUN gold is 6,497 contracts or 0.65 Mozs. With the delivery notices issued the total gold standing for delivery could be 2.5 Mozs. BINGO! This is 77% of the dealer inventory of gold! We have never seen anything like this before. This is stunning. I don't see how the dealers are going to handle this demand. They will be left with almost nothing. This could be the breaking point for the Comex. Watch this space.


Cheers,
Adrian

This is about as serious as it gets now for the bullion banks. The potential for a MAJOR short squeeze in Gold may be looming. With the potential now to wipe out 3/4 of the CRIMEX Gold, it will be impossible for the CRIMEX goons to keep up the charade they call a Gold market. It's bad enough that they have been allowed by government regulators to continually sell Gold they do not own under the pretext that less than 1% of the contract holders stand for delivery. With virtually no Gold in the CRIMEX warehouses, even the appearance of a legitimate market in Gold will be impossible. Let the countdown begin!